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Bilateral trade between China and Russia is down 31% for the first half of 2015, and Chinese investment in Russia down by 20%, according to Moscow Carnegie Center. This is a result of the fall in oil prices, declining demand for commodities in China, and the economic downturn in Russia. After the western sanctions on Russia Chinese investors are cautious about making investments. This means Russia's large expectations that this would act as an offset for economic relations with Germany and other western nations is not working out in reality. The contract for the second gas deal for gas from western Siberia, for which a memorandum was signed with China in Nov. 2014, was not signed during Putin's visit to Beijing in September 2015. Experts say the economic environment is not favorable for gas deals with the uncertain economic outlook in China.

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Brazilian President Lula's interview witht the Economist, just before leaving office. It is not still clear how Lula will be seen, even though his popularity at the moment is helping elect his chief of staff Ms. Rousseff, as his successor. Lula's success in office is seen as a continuation of the policies of President Cardozo, who helped tame Brazil's inflationary crisis. Lula has benefitted from the continuation of the policies of his predecessor, and also from the boom in exports to China for soya, metals and other exports. By helping expand Brazil's middle class and the aid to poorer segments of society with the Bolsa programme, he has earned credibility and wide popular support. The dangers lie in the areas of an extremely overvalued currency- see the link to the Brazilian currency Real- with the Real at 1.7 and analysts with computer models showing the Real really worth 2.65 dollars. Part of the problem is government deficits to finance increased spending which require inflow of foreign capital and higher interest rates. Brazil is very dependent on exports to China for the increased level of growth, this poses risks if China's growth slows as expected from the high growth rates of the past. This poses risks for the level of infrastructure spending the Lula and Ms. Rousseff goverments plan on developing. Brazil's educational system is weak and efforts to improve this under the Lula government have not produced results. So the longer term assessment of the Lula goverment will have a balanced score card of wins and losses, without the euphoria of the moment....

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China's breakneck growth was enabled by housing construction, and coal in a way that created problems of climate change. Now China's largest housing developers Evergrande and Country Garden together have a staggering $500 billion in debt and in serious financial trouble in or near default. How will China's government respond? It let Evergrande who had defaulted on debt payments build 300,000 apartments last year, just to protect home buyers. Now it's founder Mr. Xu is taken in for questioning and "illegal crimes." Making sure that the apartments on which people made deposits are built would cost another $72 billion, says Nomura. Yet suppliers, painters, builders and brokers are owed another $390 billion, in one estimate. And foreign creditors are getting together for complicated restructurings. Evergrande had entered wealth management promising 8 or 9% returns and has stopped making payments. All this is affecting public confidence in the future and China's growth story. For decades China depended on housing construction for high growth rates. Now the process is unwinding with both in financial difficulties. This NYT report says that after Evergrande's default, Country Garden failed to make a payment on $200 billion in debt last week and has 400,000 apartments that it sold but has not finished building. ...

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Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

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Did Kirsten Tatlow points out the different perceptions of China's anti-corruption initiative in a country with deeply rooted corruption. China's ranking dropped to 104th of 175 countries ranked for corruption in Transparency International's Corruption Index for 2014. The current campaign under Xi Jinping is lacking because it is partial, opaque and politically driven say researchers at Transparency International. For it to be effective it has to be done in a transparent manner, and with stronger laws for bribery, whistleblower protection, asset declarations, according to the researchers. China dropped 20 places since 2013. China's score declined by 4 points to 36. Denmark is highest at 92. Turkey dropped by 5 points. Norway, Finland, Sweden and New Zealand, are at the top of the list. Transparency International points out that free speech, accountable government an independent judiciary are essential to tackle corruption. These are not sufficient however as the example of India shows. A culture of corruption or lack of transparency and effective laws can enable corruption to grow even in countries with genuine democratic process. Democratic process does provides remedies through a change in administration as happened in India with the decisive defeat of the corruption scandal affected Congress government....

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EIA figures show U.S. stockpiles of crude oil, refined fuels and other petroleum products increasing to 1.149 billion barrels in the week ending Jan 2, 2015, excluding the strategic petroleum reserve. This is the highest ever since 1990, except for June 2013. Brent crude drops below $50 a barrel.

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U.S. airline stocks surged in 2014. Energy stocks crashed in the 4th quarter of 2014 losing over 30% of their value as oil inventories surged. Russia and Greece were the worst performing countries with losses over 30% for funds in these countries. India stock funds returns exceeded 30%. High yield bonds performed badly, with higher returns on investment grade assets. Apple continued growth following the introduction of the iPhone 6, with the stock value growing by 38% in 2014.

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Von Mark Schieritz of Germany's Zeit Online describes the changes underway following the election campaigns in the U.S., and France, and the Brexit vote in Britain, all signalling the discontent of people left behind by the tech, capitalism, trade and globalization changes of the last two decades. The appeal of one time fringe politicians using racist slogans and divisive rhetoric to appeal to those left behind, appealing to people lacking intergenerational mobility, and without much hope for a better future, is a serious concern. People who are gullible enough, lack college education, or racially isolated so that they are not likely to look carefully at what is being offered in terms of programs and change of competing parties, and likely to overlook the hard and difficult road for corrective course of action, because of anger and pentup fears. Schieritz cites as part of this change the unanimously approved conclusion in its final declaration at the G-20 meeting in Chengdu, China- "The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness." Yet this can be a sort of "too little, too late."  Bankers who are cited in an email going around Wall Street lack credibility with groups on Main Street, to people adversely affected by tech, trade and globalization changes that have been persistently ignored for over a decade, close to two decades. More convincing is the tone of Theresa May, the British prime minister's first statement outside 10 Downing Street- who spoke of the "burning injustices" and her determination to make this a top priority of her government. Still more convincing are the programs to invest $275 billion over 10 years in infrastructure put forward by the leading candidate in the U.S. presidential election of 2016, to provide easier access to public universities and colleges to those left behind, as a sure way to create new jobs and address intergenerational mobility. In fact every leading candidate had made the loss of upward mobility their central plank already in 2015, long before Trump and Sanders started their campaign. The real hope lies in western leaders Merkel, May, and Clinton, all keenly aware students of changes, all women by the way who have sensed the injustice and have the ability to come up with something new and promising for the future, after learning the lessons of the past. ...

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The slowing growth in China is reducing growth and depreciating the currencies of iron ore producing countries Brazil and Australia. China makes 50% of the world's steel and imports 1.2 billion tons of iron ore traded annually. Australia exports 80% of its iron ore to China valued at $67 billion in 2013. Brazil sends 50% of production to China. For the first time in 15 years China's steel use declined 0.3% to 500 million tons in the Jan-Aug. 2014 period. The mining companies have invested heavily in ports and railroads for expanded production. BHP CEO Mackenzie says the strategy is to maximize production because reducing production increases costs on a unit basis. The result is a decline in price from $135 a ton at the beginning of 2014 to $69.80 on Nov. 28, 2014. Prices could decline to the $50 range in 2015, according to Citigroup analysts, because of an estimated iron ore surplus of 300 million tons by 2018. As China expands recycling of older cars and washing machines to produce steel this will reduce future iron ore demand in China. JP Morgan forecast for Australia reduces GDP growth to 2.8% from 3.3% for 2015, and Brazil reduced its forecast for 2015 to 0.9% from 1.8%....

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The U.S. Federal Reserve announced on Dec. 13, 2016, that it would increase its benchmark short term interest rate by 0.25 percentage point, to between 0.50% and 0.75%. The increase will also be reflected in business and household borrowing costs. The Fed also announced its intention to make 0.75% percentage point increase in 2017, possibly in 3 quarter percentage point moves. The Fed's forecast is for the fed-funds rate to reach 2.1% at the end of 2018, and 2.9% at the end of 2019. The Fed's policy is based on a sense of strong labor market with unemployment falling, and says it is based on discussion at a 2 day meeting, and "in view of realized and expected labor-market conditions and inflation." This reflects a view that there is now not that much slack in the labor market, that further improvements could trigger higher inflation. Fed forecasts for inflation are for it to increase from 1.5% in 2016 to 1.9% in 2017 and to the target of 2% in 2018. The unemployment rate of 4.6% in 2016 is forecast to go to 4.5% in 2017 and remain at that level till 2019. Economic growth is forecast at a median annual rate of 1.9% in 2016, 2.1% in 2017, only a slight improvement from last forecast in Sept. 2016. Support for chairwoman Yellen's policy decision was unanimous. See the link on views of NYT's Binyamin Applebaum and Neil Irwin on how Fed rate policy and economic growth under the Trump administration is likely to play out, and Ian Talley's report on impact on exports with a stronger dollar in WSJ. These views also are in line with the Fed's forecasts and policy decision as they reflect the concerns of the Fed about inflation, and also reflect the Fed's view that growth will be close to 2% in 2017-2019, and not the 3-4% stated by Trump and Treasury Secretary Mnuchin. Fed rate policies to keep inflation at about 2% tend to counter stimulus spending by the Trump administration and effect of tax cuts. The size of the stimulus and the tax cuts are also likely to be much smaller than stated because of Republican concerns about the deficit in the U.S. Congress, according to these views. The stronger dollar also has the paradoxical effect of making trade gains more difficult while increasing trade friction in tougher bargaining supported by Trump, making the higher growth targets harder to reach.   ...

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A 93 year old hero of the French Resistance, Stephane Hessel, publishes a pamphlet called "Indignez-Vous!," released by a small publishing house from the publisher's home. He calls for resisting the "international dictatorship of the financial markets" and "defending the values of modern democracy." He protests France's treatment of illegal immigrants, the influence on the media by the affluent, cuts to the social safety net, French educational reforms. It was first published in October, and now has sold 1.5 million copies, all through word of mouth advertising. It has been translated into Spanish, Italian, Portuguese, and Greek. New editions are planned for Slovenian, Korean, Japanese, Swedish and other languages. In Britain, it was published with the title "Time for Outrage." The pamphlet is about 4000 words and only 14 pages of text. Its timing is good, as the French are debating what to do in their politics with an election approaching and Sarkozy's standing at new lows. The short length and low price are a big plus, at $4 it made a convenient Christmas gift. Britain, Spain, Portugal and Greece are going through austerity cuts. Public sentiment has been aroused by the cuts, and by the overarching influence of financial markets on the economies of these countries. Some of these countries referred derisively as piigs- Portugal, Ireland, Greece, Spain -countries in the financial markets. The economic impact has fallen disproportionately on the young, with high jobless rate for young people from Italy to Spain, and cuts in funding for universities and schools in the UK also fall heavily on young people. A sense that something has gone wrong in the free market system and the western world. Austerity cuts in spending in the U.S. create a similiar feeling and joblessness among young people is also high in the U.S....

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The problems divergence between developed and developing economies creates for companies- in slow growth on one side and fast growth with asset bubbles on the other side.

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The effort to shift China's economc growth away from the rampant overbuilding in housing and industrial capacity of the past to domestic consumption, and focus on meeting the demand for better medical care, quality of food, education and other quality of life products. China's leaders met at the Central Economic Work Conference in Beijing in Dec. 2015 to work out ways to make this shift so that growth rate of 6.5% and other goals can be met. Plans include reducing industrial overcapacity, dealing with overinvestment and unused inventory in housing, reducing financial risks from high corporate debt to GDP ratio approaching 160% estimated by Standard and Poors Ratings Services. By comparison the U.S. debt to GDP ratio is 70%. A steep rise resulted from the huge China stimulus program of 2008-2009, when the ratio was 98% for China. Experts such as Derek Scissors of the American Enterprise Institute are pessimistic about the prospects of successfully implementing reforms, saying reducing industrial overcapacity was a goal of the new Jinping Li-Keqiang leadership in 2013, but not much progress has been made in 2 years....

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This article in the NYT explains why the loss of jobs particularly in the auto industry to Mexico, with the experience of NAFTA passed by president Bill Clinton, has caused widespread opposition to the TPP trade agreement proposed by president Obama. Both Hillary Clinton and Donald Trump in 2016 oppose the TPP.

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First signs that OPEC may relent on production increases, as price of oil takes a new turn and becomes driven by forces that are beyond what OPEC may either foresee or be able to control. OPEC's different oil countries' senior officials are probably studying these new signals. Shukri Ghanem of Libya, a former prime minister and former head of Libya's national oil company, comments on new developments and shows willingness to increase production, to support a meeting before September and to look at the option of increasing production is his comment to Bloomberg News, May 8, 2008. Shukri was trained at the Fletcher School, Tufts Unversity, with a Masters degree in International Economics, and may have a better understanding of what is happening in international oil markets than senior officials of other OPEC countries. The signals that OPEC as well as the rest of the business community are watching are first the estimate by analysts at Goldman Sachs, Deutsche Bank and CERA's Yergin that prices are headed in the direction of another spike to $150 to $200 per barrel before coming down sharply. Ghanem and others at OPEC may find that it is not in their interest to actually lose all control of prices if this happens, that is lose the market stability that enables a cartel to do well. Price spike would generate huge spike in revenues for a short period 6-12 months before setting up for a big fall as a result of setting in motion a whole set of new forces in the use of oil. Some of this are much higher and aggressive automobile fuel efficiency targets for Europe, the US and also in places like India and China, conservation in a big way, fuel efficiency in other uses such as generating electricity and other industrial uses in plants and so on, almost like the race to the moon, with new urgency. The spike in revenues followed by a drop may actually hurt OPEC long term revenues over next 5 years as the moderation in growth in developing countries like China and India is quite likely as the US slows down and this would only accelerate the pace of this moderation. With focus on efficiency in the use of oil worldwide, accelerated new production in non-opec oil fields, and moderated growth worldwide, enough savings could be generated in 24-36 months to bring oil prices down from the demand side and reduce speculative investments. The second signal was a WSJ survey of 53 respondents n this case economists, and 51% of the economists surveyed said that the oil price rise's key reason was on the demand side from developing countries. And speculation was a smaller factor attributed to by 11% of the economists. So the combination of these 2 factors added up to 62%. Foreign exchange was cited by 15% of the economists, adding all three factors would attribute 77% of the rise in oil prices to demand from developing countries, speculation based on rising demand, and the weakness of the dollar. If demand the key element in this drops as a result of an even bigger spike in oil prices to $150-$200, with demand moderating in developing contries, and the dollar strengthens in 12-18 months, then the spike would be temporary, leading to significant correction afterwards. This sharp correction would then become entrenched as the world would look at oil in a new way entirely different from the way it did in the years 1945-2007. ...

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11 Pacific Rim nations form the Trans-Pacific Partnership in 2018. The Obama administration supported the trade pact alienating supporters in its union base particularly in the midwestern states. Mr. Trump opposed the TPP in his election campaign and made it a significant issue for swing voters in midwestern states after job losses in the auto industry. With the opposition of president Trump the U.S. decided to withdraw from TPP.  The 11 nations agreeing to join a revised agreement are Japan, Canada, Mexico, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. So far six countries have formally approved the deal, Australia, Canada, Mexico, Singapore, New Zealand and Japan, setting the stage for two rounds of tariff reductions starting December 30, 2018. Agricultural products duties will be duty free within 3 to 7 years including for Japan and Mexico. Australia, New Zealand, Canada are major agricultural exporters. Japan supported the deal as a way to counter China's influence in the region. In the U.S. the gains would be in intellectual property rights but losses for workers in the auto and manufacturing industries, a point Mr. Trump recognized in his election campaign as he campaigned in the midwestern states. Mr. Obama pursued TPP over objections of workers organizations and unions including auto workers union, with his advisors suggesting this as a way to counter China's influence in the region. By 2018 the Democratic party support base fractured on this as one of the major issues.   ...