EUCOM Economic Analysis - Part I

[Surferbeetle]

Ten million electric cars by 2020 could soak up electric power at night and since the family cars are idle almost all the time they could be plugged into electrical grid and serve as millions of batteries. An electrical grid which can make use of millions of batteries as buffers could be a substantial improvement. The ability to absorb electrical energy at a low price (when there's a lot of wind in the north and sun in the south) and possibly even give it back at a high price (in competition with natural gas powerplants which usually run only at peak demand times) would be attractive to owners

Israel's Shai Aggassi* is someone to watch on this topic. He has been covered in HBR from time to time and it appears that his incremental rollout of a network of battery changing stations is moving forward:

Better Place, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Better_Place

Better Place is a venture-backed international company. It is formally based in Palo Alto, California, but the bulk of its planning and operations has been steered from Israel, where both its founder Shai Agassi and its chief investors reside. Better Place develops and sells battery-charging and battery-switching services for electric vehicles. Israel is also the location of the company's first large-scale commercial pilot for battery-switching services, launched to the public in early 2012.

Renault Fluence Z.E., From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Renault_Fluence_Z.E.

Energy CEO Shai Agassi on recognizing a “sliding-doors” moment, A Conversation with Shai Agassi by Josette Akresh-Gonzales, May 2009, HBR, http://hbr.org/2009/05/energy-ceo-sh...rs-moment/ar/1

Speeding Ahead to a Better Place, by Elie Ofek, Alison Berkley Wagonfeld, Harvard Business School , Publication date: Jan 19, 2012, http://hbr.org/product/speeding-ahea...512056-PDF-ENG

Better Place Plans Electric-Car IPO Within 2 Years, Agassi Says, By Gwen Ackerman & Jonathan Ferziger - Jan 25, 2012 7:34 AM MT, http://www.bloomberg.com/news/2012-0...assi-says.html

Better Place LLC, a U.S. startup developing charging stations for electric vehicles that started putting cars on the road this week, expects to go public in the next two years, Chief Executive Officer Shai Agassi said.

“We’re probably not going to go for another private round between now and the initial public offering,” Agassi, 43, who founded the business, said yesterday at Better Place’s test track and showroom north of Tel Aviv. “We have enough capital to go all the way until then.”

Startup to Capture Lithium from Geothermal Plants, FRIDAY, NOVEMBER 18, 2011, Science, http://science-wired.blogspot.com/20...hium-from.html

As portable electronics get more popular and the market for electric vehicles takes off, demand for lithium—a critical element in rechargeable lithium-ion batteries—could soar. Yet just two countries, Chile and Australia, dominate global lithium production.

The Lithium Rush, By Antonio Regalado on December 21, 2009, Technology Review, http://www.technologyreview.com/phot...-lithium-rush/

In the Bolivian Andes lies a vast salt flat that may shape the future of transportation.

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*Hmm it seems Shai Agassi is no longer the CEO or on the board of Better Place...

http://www.betterplace.com/Our-Story

[Firn]

The big question is when the economies of scale and networks will kick in with a vengeance on the side fo this revolution. Time seems certainly on it's side, it being not question of if, but when.

Notthetreasuryview discusses the 'excellent' catalogue Employment and Social Developments in Europe 2012 (08/01/2013).

I have so far not read a single line of it, but may give the abstract, the introduction and may a chapter or so a quick view as the time is limited but the pages are many.

[Surferbeetle]

...strategic macro through the prism at Brookings (Hat tip to Ned McDonnell III who shared a link:
http://www.brookings.edu/research/in...ts-black-swans ):

Eurozoned Out, By: Justin Vasse and Thomas Wright, January 17, 2013, Brookings, http://www.brookings.edu/research/pa.../eurozoned-out

The Eurocrisis has been ongoing for three years and the European Union is beginning to get its act together to build a sustainable monetary union. But, the euro is not out of the woods yet. Real dangers remain. The underlying causes of the crisis have not been addressed. The politics are pulling in a different direction from that required for a solution. Populations on the periphery are suffering from austerity measures and see no end in sight. Those in the so-called core (Germany, Northern Europe) feel exploited. The Eurozone is building new structures but they may not be sufficient to protect it against a future major crisis.

As long as an optimal solution remains elusive, the risks of failure will remain. If failure occurs, it could be devastating to the U.S. economy, surpassing the crisis of 2008. Some estimates project that the collapse of the euro would cause an immediate 10 percent loss of GDP for the global economy, with unemployment in the European Union reaching 20 percent and spiraling inflation on the EUs periphery. The United States and European Union are the two largest economies in the world and they are inextricably linked with each other through trade, foreign direct investment (FDI), and financial markets. For instance, 50 percent of U.S. FDI abroad goes to the European Union while 62 percent of FDI into the United States originates in the European Union. The rest of the world would also be adversely affected, particularly the Middle East and China, the worlds second largest national economy, both of which require robust growth to maintain domestic political stability.

A secondary but related danger is that the construction of a new Eurozone could lead to the fracturing of the European Union through a British withdrawal. The United Kingdom is extremely concerned that further integration in the Eurozone will damage its interests as an E.U. member. Public opinion also favors a renegotiation of the United Kingdoms terms of membership even though such a renegotiation would be strewn with difficulty and would likely fail. In this scenario, the Eurocrisis would remove Americas most reliable European ally from the EU and lead to a weakening of Europes capacity to act as a coherent unit in world affairs.

Free Trade Game Changer, By: Mireya Sols and Justin Vasse, January 17, 2013, http://www.brookings.edu/research/pa...e-game-changer

Pursuing and signing free trade agreements (FTAs) with both the Asia-Pacific region and Europe during your second administration will yield considerable economic and political benefits. World trade is expected to have stalled at a mere 2.5 percent growth in 2012, down from 13.8 percent in 2010. Protectionism is on the rise everywhere, especially in the form of non-tariff barriers. The Doha Round is essentially dead. At the same time, the United States and Europe need to stimulate their economies without resorting to fiscal spending. Furthermore, the United States needs to establish a broader and deeper economic presence in Asia, the worlds most dynamic economic region. Achieving both a Trans-Pacific Partnership (TPP) and a Trans-Atlantic Free Trade Agreement (TAFTA) is the most realistic way to reclaim U.S. economic leadership and make progress towards your promised goal of doubling U.S. exports. Moreover, signing both the TPP and TAFTA would have deep strategic implications. Both deals would reaffirm liberal norms and a leading U.S. role in setting the global rules of the road. The TPP would help define the standard for economic integration in Asia, without necessarily antagonizing China. TAFTA would give American and European businesses an edge in setting industrial standards for tomorrows global economy.

...and, arguably, tactical macro:

Are we seeing the great rotation from bonds to stocks?, January 20, 2013 5:07 pm by Gavyn Davies, Financial Times, http://blogs.ft.com/gavyndavies/2013...nds-to-stocks/

The past few weeks have seen a surge of inflows into US equity mutual funds, following many years in which investors have preferred allocating money to bonds rather than stocks. The week ended 9 January saw the fourth largest weekly cash flow into equity mutual funds since 1992, and large investment companies like BlackRock have spoken of a sea change in the opinion of small investors towards equities. Some analysts see this as the start of a great rotation from bonds into stocks, thus reversing the pattern of the last decade.

Others, however, point out that cash inflows from small investors tend to be contrarian indicators, since they are often driven by recent market behaviour, rather than by fundamental valuation, which is what actually determines market returns in the long run.

My conclusions from all this? Recent investor flows into equities, and improving sentiment, are driven mainly by price momentum, which works over short horizons, but says nothing about a longer term rotation from bonds to stocks. In judging medium term returns, we have nothing better to rely upon than fundamental valuation, which also fits better with the theory of finance. At present, valuation indicates that US stocks (though not European stocks) are fairly expensive compared to their own history, while bonds are extremely expensive. Based on valuation, US stocks should therefore out-perform bonds in the medium term, but overall real returns on both assets in the US may be fairly low.

[Surferbeetle]

David Cameron's EU speech - full text, Guardian.co.uk, Wednesday 23 January 2013 03.45 EST, http://www.guardian.co.uk/politics/2...ech-referendum

Seventy years ago, Europe was being torn apart by its second catastrophic conflict in a generation. A war which saw the streets of European cities strewn with rubble. The skies of London lit by flames night after night. And millions dead across the world in the battle for peace and liberty.

As we remember their sacrifice, so we should also remember how the shift in Europe from war to sustained peace came about. It did not happen like a change in the weather. It happened because of determined work over generations. A commitment to friendship and a resolve never to revisit that dark past – a commitment epitomised by the Elysee treaty signed 50 years ago this week.

What Churchill described as the twin marauders of war and tyranny have been almost entirely banished from our continent. Today, hundreds of millions dwell in freedom, from the Baltic to the Adriatic, from the Western Approaches to the Aegean.

And while we must never take this for granted, the first purpose of the European Union – to secure peace – has been achieved and we should pay tribute to all those in the EU, alongside Nato, who made that happen.

But today the main, overriding purpose of the European Union is different: not to win peace, but to secure prosperity.

As Chancellor Merkel has said, if Europe today accounts for just over 7% of the world's population, produces around 25% of global GDP and has to finance 50% of global social spending, then it's obvious that it will have to work very hard to maintain its prosperity and way of life.

Third, there is a growing frustration that the EU is seen as something that is done to people rather than acting on their behalf. And this is being intensified by the very solutions required to resolve the economic problems.

And my point is this. More of the same will not secure a long-term future for the eurozone. More of the same will not see the European Union keeping pace with the new powerhouse economies. More of the same will not bring the European Union any closer to its citizens. More of the same will just produce more of the same: less competitiveness, less growth, fewer jobs.

And that will make our countries weaker not stronger.

That is why we need fundamental, far-reaching change.

We believe in a flexible union of free member states who share treaties and institutions and pursue together the ideal of co-operation. To represent and promote the values of European civilisation in the world. To advance our shared interests by using our collective power to open markets. And to build a strong economic base across the whole of Europe.

And we believe in our nations working together to protect the security and diversity of our energy supplies. To tackle climate change and global poverty. To work together against terrorism and organised crime. And to continue to welcome new countries into the EU.

For an EU without Britain, without one of Europe's strongest powers, a country which in many ways invented the single market, and which brings real heft to Europe's influence on the world stage, which plays by the rules and which is a force for liberal economic reform would be a very different kind of European Union.

And when the referendum comes let me say now that if we can negotiate such an arrangement, I will campaign for it with all my heart and soul.

[Surferbeetle]

A government rescue of the world's oldest bank may substantially impact the Italian political sphere...

Paschi Pressed to Disclose Derivative Losses as Vote Looms, By Sonia Sirletti & Elisa Martinuzzi - Jan 23, 2013 10:06 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ote-looms.html

Former Monte Paschi Chairman Giuseppe Mussari resigned yesterday as head of the Italian Banking Association lobby group. The world’s oldest lender is under pressure to disclose the full extent of its use of derivatives after saying in November that it needed an additional 500 million euros of government money to bolster capital because of the contracts. Shareholders meet this week to approve two capital raisings required by the Treasury for the lender to get that aid.

“We will ask for full transparency,” Guido Antolini, a member of Associazione di Piccoli Azionisti Azione Banca Monte dei Paschi di Siena, an association of the lender’s individual investors, said in a telephone interview. “We will want to know what was inherited from previous executives and the actions that the bank is taking to repair the damage.”

Wirbel um Derivate bei Monte dei Paschi, Wirtschaftsnachrichten Gestern, 22:21 (23.01.2013), NZZ, http://www.nzz.ch/aktuell/wirtschaft...chi-1.17958485

Der Wirbel um Mussari, der vorerst widerrechtliche Handlungen kategorisch bestritt, und vor allem auch die Unsicherheit bezüglich der finanziellen Folgen des Skandals führten am Mittwoch vorübergehend zu einem schweren Einbruch des MPS-Aktienkurses von bis zu 11%. Das älteste Geldhaus der Welt, das seit letztem Sommer vom früheren Unicredit-Chef Alessandro Profumo präsidiert wird, hatte Ende vergangenen November bereits mitgeteilt, dass es wegen in Vorjahren eingefädelter Derivatetransaktionen vorsorglich 3,9 Mrd. € statt der bis dahin geplanten 3,5 Mrd. € Staatshilfe in Form sogenannter Monti-Bonds beanspruchen werde.

[Firn]

The count against the miner, better known as Schwarzenberg against Zeman will have at least one certain outcome: a big eurosceptic will no longer be the president of the Czech Republic.

A runoff on January 25th and 26th will decide the winner. While Mr Zeman largely met expectations from pre-election polling, Mr Schwarzenberg more than doubled his anticipated share in what was the first direct presidential election in the history of the country. Some 61.3 % of voters cast ballots after a constitutional change earlier this year did away with a formerly convoluted parliamentary process that was rife with backroom dealing. The head of state has limited powers, but is influential in driving public opinion and appoints members of the Constitutional Court, among other tasks.

Voting patterns were sharply divided geographically and socio-economically, with the left-leaning populist Mr Zeman dominating the eastern part of the country, Moravia, as well as the economically distressed North Bohemian region. Mr Schwarzenberg, an irreverent conservative, held sway in a central swath of the country, trending towards urban and wealthy, as well as from ballots cast by Czech citizens living abroad.

A hot discussion about the (in)famous Benes decrees did fire up additionally the last days of the election.

From an economic point of view the developed central and western parts of the Republic are well intergrated into the European (think German) economy.

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The Sole 24 ore has focused on the MPS affair. It is of course sad and a bit unsettling to hear talk about la sicurezza dei depositi again and see informations pages for savers. It is interesting to note that much of the basic stuff has been among the most read on that site.

[Surferbeetle]

Appreciate the Czech links, from there it was a short walk to the Chalga videos on youtube...that damn globalization.

TAFTA is back, approximately 50% of global trade may be impacted if the negotiators can pull it off. The time table for implementation of Basel III has been relaxed, the LTRO is being paid off (kinda ), there is talk of a Great Rotation from bonds to stocks, interest rates are indeed fluctuating, currency wars are a topic of discussion...hmmm...we are at technical boundaries (52 week highs are regularly being broken) and fundamental valuation boundaries on the stocks that I follow...the phrase 'the market can remain irrational longer than one can remain solvent comes to mind.' I have taken to buying ETFs early in the week and bailing out by the end of the week...

Transatlantic Free Trade Area, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Transat...ree_Trade_Area

From ideas to implementation, Remarks by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, at the 8th High Level Meeting organised by the Basel Committee on Banking Supervision and the Financial Stability Institute and hosted by the South African Reserve Bank, Cape Town, 24 January 2013, http://www.bis.org/review/r130124a.pdf?frames=0

Of course, there are plenty of other big ideas being floated on how the banking industry should be restructured in the aftermath of the crisis, particularly those related to varying models of structural separation (eg the ideas of Volker, Vickers and Liikanen). But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future.

ECB Website, Open market operations, http://www.ecb.int/mopo/implement/om...ex.en.html#com

ECB Says Banks to Repay More Than Forecast of 3-Year Loan, By Stefan Riecher - Jan 25, 2013 5:56 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...next-week.html

Some 278 financial institutions will return 137.2 billion euros ($184.4 billion) on Jan. 30, the first opportunity for early repayment of the initial three-year loan, the Frankfurt- based ECB said in a statement today. That compares with the median forecast of 84 billion euros in a Bloomberg News survey of economists. The ECB’s first loan totalled 489 billion euros and banks can continue to make early repayments in coming weeks.

The ECB still allows banks to borrow as much money as they want against eligible collateral for periods of one week, one month and three months. Some economists say this reduces the importance of the three-year loans being repaid.

Government Bond Yields, Bloomberg, http://www.bloomberg.com/markets/rates-bonds/

China’s Yi Warns on Currency Wars as Yuan Close to ‘Equilibrium’, By Jeff Black & Zoe Schneeweis - Jan 27, 2013 11:00 AM MT, Bloomberg News, http://www.bloomberg.com/news/2013-0...ilibrium-.html

Japanese Economy Minister Akira Amari said in Davos that his nation aims to defeat deflation rather than weaken the yen, after Prime Minister Shinzo Abe’s push for laxer monetary policy sparked a slide in the currency. His comments on Jan. 26 followed a week in which German and Canadian policy makers joined a worldwide chorus highlighting a recent plunge in the yen as a worry.

“A currency war, a series of ###-for-tat competitive devaluations, would trigger trade protection measures that would damage global trade and therefore growth globally,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong who previously worked for the World Bank. “That would not be good for any country with a stake in the global economy.”

Reasons to feel bullish as political clouds fade, January 25, 2013 8:29 pm, John Authers, Financial Times, www.ft.com

What could possibly go wrong? Stock markets have had a great start to the year. The talk about a “Great Rotation” from bonds into stocks, and of a new Bull Market in equities, is deafening.

As the US fund manager John Hussman points out, the following combination currently holds: the S&P is more than 8 per cent above its average of the preceding 52 weeks, more than 50 per cent above its four-year low, and trades well above its historic average cyclically adjusted earnings multiple; while treasury yields have risen over the past six months, and investor bullishness far outweighs bearishness. This combination has been seen nine times in the past four decades, and in all but one a correction ensued.