Category Archives: Trade

Irrational exuberance continues plaguing Bitcoin

2013.12.IgnoranceBank of America has now initiated coverage of bitcoin and puts a fair value price target at US$1,300, which depending on your view, either validates or discredits the digital currency. Personally, I have no skin in this game, I appreciate and am fascinated by the theoretical construct, but am put off by the breathlessly brainless hype surrounding it and one doesn’t have to look far to see bitcoin’s limitations.

With that said now, the BoA report link is here, and as far as I’m concerned, the most important stuff comes in at page 6, in the section entitled, “How to assess Bitcoin’s fair value?”

I admit up front I have yet to come up with a viable answer to this question, but if I may say so, I am expert at recognizing bullshit when I see it. And BoA analysts make what even they concede are very big assumptions here, but if you know the assumptions are “big” (read: unrealistic), then why bother going on about it in the first place?

Anyway, taking this piece by piece, some of the outlandish assumptions that lead to a “fair value” price of $1,300, as far as bitcoin’s value as a medium of exchange:

Given the assumption that Bitcoin will grow to account for the payment of 10% of all on-line shopping, this would suggest that US households would want to have a balance of $1bn worth of Bitcoins.

…given bitcoin’s famous finite supply cap at 21 million units, the math here isn’t quite doing it for me.

What about for the whole world? US GDP is about 20% of World GDP. If we were to assume the same degrees of penetration of e-commerce for the rest of the world and that spending by households outside the US has the same velocity, we get to $5bn worth of Bitcoins for the total desired cash/noncash balance of global on-line shopping.

…sure, but both of those assumptions are not just wrong but shockingly ignorant about how the world outside the United States operates. I don’t need to spell this one out further, do I?

In addition to its role as a mean for payment for on-line commerce, Bitcoin can be used for transfer of money (e.g. immigrant worker in the US sending remittances back home).

…the average immigrant worker in the US sending remittances back home is a) Latin American, and b) traditionally very distrustful of all financial mechanisms or intermediaries that are not cash; further, this average immigrant worker would require a level of facility with the internet that various studies simply do not bear out.

Western Union, MoneyGram, and Euronet are the three top players in the money transfer industry (with about 20% of the total market share). Let’s assume that Bitcoin becomes one of the top three players in this industry.

…actually, let’s not, for all kinds of practical reasons. See previous two rebuttals to begin with.

A thought just occurred to me: maybe this is a practical joke — like the Onion!

As far as bitcoin somehow serving as a store of value, the entire discussion here appears LSD-induced, with the following statement perhaps being the biggest whopper:

If we were to assume that Bitcoin were to eventually acquire the reputation of silver (which is an extremely ambitious assumption), this suggests that Bitcoin market capitalization for its role as a store of value could reach $5bn.

WHAT?

This is the metaphorical equivalent of saying that assuming gravity were one-tenth its current force, I could leap tall buildings in a single bound…and then going on to design a workout routine that does indeed involve me leaping tall buildings in a single bound.

Someone’s living in unreality and I’m pretty sure it’s not me. 

More evidence of a Bitcoin bubble

If this isn’t proof enough of a Bitcoin bubble, I don’t know what is:

2013 December Bitcoin

Actually you know what? I think there is better proof: THIS.

Chart of the Day: World Population Growth vs History of Technology

This was just sent in from an unidentified reader. I do believe there is such a thing as being “too meta” but when shifts are so visibly pronounced, as they are here, it’s worth taking a moment to stop and think about.

Growth of World Pop v History of Tech

Charts of the Day: The Future Of Emerging And Frontier Markets

CarnacTheMagnificentThanks to Ernst & Young, I’ve got my retirement destination all picked out: Turkey.

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young,  which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector. 

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you  can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

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Map Of The Day: Global Shipping Routes

Thanks to CNI Group for this:

2013.04.16.Global Shipping Routes

I guess what strikes me the most about this map is the huge blank spaces among the world’s global shipping routes: the Bay of Bengal, southern Australia, the west coast of South America, and pretty much all of sub-Saharan Africa that isn’t connected to either South Africa or the Gulf of Guinea. Of these, Australia at least has a viable road network. Relative to the entirety of the world, these don’t look like large spaces, but the increased costs for closing these gaps via land are not insignificant.

Another thing that comes to mind here is imagining how the shifts in shipping patterns may have happened over the centuries. Never mind the obvious growth in gross number of journeys; what I’m thinking of here is the opening up of new routes.

I’m not a shipping person, but I try to be as much of a history person as I can. Off the top of my head, I would venture that China’s periodic bouts with isolationism over the centuries have had material effects on the Asia routes, the most recent probably being a massive dropoff during the 1950s through sometime in the 1970s as China re-opened and Japan started coming online. And transatlantic development from the Industrial Revolution forward has kind of been done to death.

There’s also this book, which I’ve yet to read but has been on my to-do list since it came out. I suppose where this all leads is, what’s the future of this map? More specifically, how much of south-south trade development will any of us live to see?

Infograph on the Global Black Market

Feel like getting lost in space? Check this out:

Black Market

Original source here.

How Oil Divides The Economies Of Africa Into Winners And Losers

I can’t get this article from the FT’s William Wallis out of my head. The headline is “Currencies pressed by trade imbalances” but this really only captures a small slice of the picture. Check it out:

With import demand outstripping export growth in some of the continent’s fastest expanding economies, rising trade imbalances are putting pressure on currencies. African and international investors hedge against this by spreading risk – one factor that is driving African banks and businesses across borders.

But even an expansive footprint is not always enough. MTN, the continent’s leading telecoms provider with a presence in 21 African countries, announced that currency swings had weighed heavily on its earnings.

More broadly says Razia Khan, head of Africa research at Standard Chartered Bank, widening current account deficits are the result of an investment and consumption boom, new resource exploration activity and “the scaling up of output”. Ghana fits into this category. It is also on the risk radar this year as heavy investment in oil and gas infrastructure continues, with only modest increases forecast for oil output.

A weak currency does not help those African countries with limited capacity to ramp up exports in response. Kenya cannot for example suddenly double tea production. So, it is forced to defend its currency to avert importing inflation.

Loose monetary policy in major developed economies has driven a rush of short-term funds into African markets. David Cowan, Africa economist at Citibank, says the way in which central banks defend their currencies and the margins that foreign investors earn will be one determining factor in how long the appetite endures.

I don’t disagree with any of this but would point out that this is all just the tip of the iceberg and there are a lot of ways to slice this.

One is that just six of Africa’s 53 countries account for two-thirds of the entirety of Africa’s $2.0 trillion economy. In descending order of nominal GDP: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco. I think a pie chart best demonstrates this relationship:

2013.03.20.Africa 2013 GDP composition

Another is to think about how much of Africa’s total economy is driven by oil exports. Let’s try the following table to demonstrate this:

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InfoGraph of the Day: Chinese Companies and Risk in Africa

This is really impressive and makes me really rethink my previous notions of a political risk framework, particularly in the context of Africa. No more preface necessary:

2013.03.14.China risk in Africa

Sourced from Africa-Asia Confidential.

China Latin America Trade: Who’s Dependent On Whom?

Yes, I am obsessed with charts. And if you’re still reading this blog with any regularity, you are too. Especially if they’re about China Latin America trade.

I finally had a chance to dig through a BBVA report from last month entitled, “How dependent is Latin America’s Economy on China?” Following are the essential takeaways.

  • Commodities have always taken a significant share of Latin American exports; the level of commodity exports concentration had been declining until the start of this century, which coincides with the further involvement of China in global markets.
  • The shift of China’s economic model makes it the biggest contributor to world commodity demand and the top importer of Latin America’s natural resources.
  • There is a positive China effect on commodity exports concentration; the dependency on Chinese demand for sample commodities has indeed increased during the last decade.
  • However, Latin American countries’ economic growth is far less dependent on China than the commodity exports figures might imply.

Now with those overview bullets out of the way, the first chart that strikes me is shown a few different ways but all with the same conclusion. This is one of the versions, demonstrating the proportion of each country’s exports that are commodities:

2013.03.12.Latam-China commodity exports percent share total

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TRANSCRIPT: Nomad Capitalist Report Radio Show Interview

terraqueous-globeI was interviewed for the weekly Nomad Capitalist radio show over the weekend, hosted by Andrew Henderson. On the agenda: the Africa-China relationship, putting the hot-or-not test to Frontier Markets and the nuances of investing in Mexico. Here’s the link and here’s the mp3:

http://www.buzzsprout.com/8222/78536-nomad-capitalist-report-feb-23-2013.mp3

And here’s the transcript:

Andrew Henderson:   I want to start with a piece that you touched on recently, commodities, and emerging markets’ domination of reserves of commodities, explain that a little bit and let’s get into what exactly that can tell us.

Ulysses de la Torre:     Thanks for having me. If it’s the graph I think you’re talking about, it’s not a graph, it’s actually a map, which I pulled from Glencore, which, given Glencore’s footprint in this universe, shouldn’t be surprising that they should come up with something like this. And what it basically shows is a map of the world and how all of the key commodities are dominated in one form or another by underdeveloped markets. When I look at it, the first thing I see is that one of the big obstacles here is nothing more than logistics and infrastructure. And this is something that’s frequently lost on foreign investors trying to research this from afar because these are elements of an economy that you cannot fully understand without experiencing it. It’s one thing to be stuck in a traffic jam that takes you two hours to make a trip that normally takes one hour, but it’s entirely another thing for a truckload of raw materials to take three days to drive a couple hundred miles because of anything from bad roads, military checkpoints, bandits, local territorial disputes, on top of your basic traffic problems. This adds significantly to transport costs and who ultimately foots the bill for this added cost is often a point of dispute that can manifest in a lot of ways that North America and Europe haven’t really had to think about in decades, since before most of us were even alive.

AH:                             You talk a lot about Africa and I want to get into some of the specifics that are going on there. There’s a big media play that China is recolonizing Africa and so many of the resources plays, even the financial sector plays, let’s talk about Africa, because that’s one area to hone in on for these resources, it’s very resource rich, it’s fast growing, but it’s more than just China, let’s talk about who the players are in Africa and what’s going on there, give us the introductory sketch to Africa.

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9 Emerging and Frontier Markets Uncle Sam wants YOU to export to

On the heels of the latest update to the World Bank’s annual Doing Business index, I thought I would use this opportunity to try a different take on the usual blather surrounding this study about which country did or didn’t move up five spaces in the shareholders’ rights category.

I recently happened to attend a function sponsored by the US Export-Import Bank that was part of its Global Access for Small Business Initiative. In the interest of not getting bogged down here by too much bureaucratese, the nutshell of this initiative can be summed up as such:

“Increasing exports and access to foreign markets is a proven tool for strengthening our economy and creating durable jobs. The United States is well positioned to capitalize on the types of products and services that fast-growing markets around the world are demanding. Ex-Im Bank is committed to ensuring that American small businesses can compete in this global climate.”

For those not in the habit of tuning in to this sort of thing, this initiative basically is targeting American small businesses looking to export to emerging and frontier markets. At first glance, this isn’t too far off from what the Overseas Private Investment Corporation (OPIC) does, but the focus here is less about investing overseas and more on businesses looking to export overseas. Where exactly overseas? Officially, anywhere, but Ex-Im representatives made a point of letting the audience know that those looking to export to the following nine countries would receive special attention, determined by “a variety of macroeconomic indicators”:
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Hype vs. growth: China’s Yuan Renminbi in international payments

I’m VERY skeptical about the race to declare dollar extinction/renminbi dominance, but two items have been brought to my attention in the past few days that I thought would look rather nice when mashed up together. The first is this chart, from SWIFT:

How alarmed you are as a result looking at this chart I suppose depends on some combination of what your biases are, how unplugged you are and how alarmed you tend to become at things that contradict your expectations. Let’s consider the observations to make from this chart and some other things and then we’ll come back to what our response should be.
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Assessing political risk in the South China Sea

There’s a lot more to the South China Sea engagement, but of the few people even acknowledging the escalating situation there, Brown Brothers Harriman is the only one looking at this through a market-oriented lens. This is what strategist Ilan Solot had to say in a recent research note:

Tensions in the South China Seas are rising again between China, Japan, Korea, the Philippines and several other Asian countries. This is a longstanding territorial disputes compounded by the desire to secure oil and natural gas resources. The region is also an important shipping rote. There have been a few developments this week that suggest an intensification of the tensions going forward.

We can foresee three possible consequences for markets: (1) The conflict could spill over into trade restrictions; (2) It could threaten the web of bilateral and multilateral swap agreements (Chiang Mai) which give smaller Asian countries protection during funding squeezes; and (3) It could reduce the cooperation in the region. All of these risks are still unlikely to materialize in the short term, in our view, but the chances are increasing.
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What Silk Road’s narcotics trading says about the FX market and capital controls

If you haven’t heard of Silk Road, the anonymous eBay-style marketplace that has quickly become a hub for controlled substances, read up on it herehere or here first. Otherwise, Nicholas Christin’s recent working paper, “Traveling the Silk Road: A measurement analysis of a large anonymous online marketplace”, opens no end of questions for just about any discipline under the sun. My concern is more foreign exchange related, so let’s get right to it. The table to the right shows the top 20 best-selling items available. I’m not too surprised that weed is the top seller here, but I am surprised that it doesn’t constitute a greater share of trade. Next up, still bird’s eye view, the top shipping origins and destinations:

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Charts of the Day: China-Africa trade, EM debt default risk, ZH comment cycle

Some interesting graphics I happened to bump into over the past 24 hours:

1. Africa is exporting more volume to China, but as a percentage of the total, China’s take has remained constant for two years now. So you do that math. Other new players in town include Brazil, India, Turkey, South Korea. Check this out:

From the beyondbrics. Continue reading

U.S. Export-Import Bank Approves $1.2 Billion in Financing for Pemex

From an Ex-Im Bank press release:

Washington, D.C. – The Export-Import Bank of the United States (Ex-Im Bank) has authorized $1.2 billion in export financing in four separate transactions to support the export of U.S. goods and services to Petroleos Mexicanos (Pemex), Mexico’s national oil and gas company. The amount includes a $200 million small-business facility, which will support exports from U.S. small businesses.

For the first time, Pemex will offer Ex-Im-guaranteed bond issuances to capital markets to fund the transactions. Pemex anticipates four-to-seven bond offerings that will occur from June to September 2012. In the event the funding cost is prohibitive, Pemex may exercise the option to seek Ex-Im direct loans. Continue reading

How to think about China-Africa Trade

A friend of mine recently asked me, “How long do you continue reading something after you see the phrase, ‘Washington Consensus’?” And it’s a valid question, but when I see either the phrase “China Latin America” or “China Africa”, I’m pretty much automatically bought in. And so it continues with a recent opinion article in China Daily, “Confronting some of the major criticisms of contemporary Sino-African ties.” It’s quite long, as opinions these days go, and frankly I found the graphs and charts much more telling so let’s look at those first:

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IMF, World Bank negotiators, take note: A novel approach to Game Theory

Golden Balls, the British prisoner’s dilemma game show that showcases “the ultimate test of faith, trust and greed” features a final showdown in which two contestants must decide whether to split or steal the jackpot. If they both decide to split, they walk away with half the pot each; if one steals and one splits, the stealer takes the whole pot; and if they both steal, they walk away with nothing.

A You Tube channel that goes by the name, “spinout3” recently put up a clip of what has got to be one of the more novel approaches to this paradigm. If you’re interested in these sorts of things, I promise you this clip is worth six minutes of your time. Politicians, salespeople, WTO negotiators, take note:

Ray Dalio in Plain English: How the Economy Works

Cardiothoracic surgeons | Source: WikipediaBridgewater Associates’ Ray Dalio has recently updated a white paper outlining the basic template of developed markets. Since my concern is emerging and frontier markets, I’m going to take his arguments at face value as they apply to the U.S. and extract what is  relevant in assessing economies where information is not always so forthcoming.

And for those who don’t know who Ray Dalio is, he founded the largest hedge fund in the world, Bridgewater Associates, which manages  well more than US$100 billion (see Contrarian Investor yesterday for a very informative guide to visualizing this number).
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Assessing a Decade of China-Africa Trade

Standard Bank of Africa recently released a report evaluating China’s positioning in Africa. Among the highlights:

  • Bilateral trade is the clearest manifestation of commercial alignment and, on this score, 2011 was another successful year. Trade between China and Africa reached USD160 billion (bn) in 2011—up by 28% from the previous year. Last year, China accounted for 18% of Africa‟s trade (up from 10% in 2008).
  • African exports to China increased by one-third last year, up from USD67bn in 2010 to USD93bn (+60% since 2008). In contrast, African exports to advanced economies are under water vis-à-vis 2008 levels, and growing slowly.

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