Post 241

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

News

Diamonds

According to wiki, diamonds are nature’s hardest material.

  • Most diamonds are over 1 billion years old.
  • The largest diamond mining company in the world is De Beers and it was founded in South Africa.
    • 40% of global production.
    • A little history.
    • The company name comes from two Dutch settlers named de Beer.
    • 1888: Cecil Rhodes, with funding from the Rothschilds, takes over and owns all diamond mining operations in South Africa.
    • PM: Note that the official history on the De Beers website makes no mention of the founder Cecil Rhodes.
      • The African territory of Rhodesia was named after him.
        • Imagine if his last name was Amnees?
          • Fuhgettaboutit.
        • Now Zimbabwe and Zambia.
      • At his death in 1902, he established the Rhodes scholarship at Oxford University.
        • Today a scholarship can be worth up to $250,000.
      • He is accused by some of being a white supremacist.
      • A statue of him in Cape Town was taken down in 2015.
        • Rhode to ruin.
      • Oxford University has refused to remove their statue.
    • 1947: The slogan “A diamond is forever” is first used.
      • Ad Age says it was the best ad slogan of the 20th century.
      • And of course, the famous Bond film Diamonds Are Forever.
        • Theme song from the great John Barry ‘here
    • By the 1980s they controlled around 90% of the world’s diamond trade.
    • In the blood diamonds controversy, also known as conflict diamonds, De Beers had been accused of buying diamonds from other countries in Africa with the proceeds used to purchase weapons.

Anyway, the FT reports that diamond prices fell 18% last year.

  • Fewer people getting married in China.
  • Popularity of lab-created diamonds.

US Housing Unaffordability

According to urban.org:

  • 80% of homes that are for sale in the US are unaffordable for median income households.
  • The number of homes priced below $350,000:
    • Jul 2015: 1.7 million
    • Feb 2020 (Pre-COVID): 580,000
    • Oct 2022: 320,000
      • Down 81%
  • And over that period the number of households in the US has risen (FRED):
    • 2015: 124.6 million
    • 2022: 131.2 million
      • Up 5.3%
    • So, more people are looking for 81% fewer affordable homes.

Canadian Housing Unaffordability

Since the Great Financial Crisis:

  • Total compensation of employees (FRED): Up 83%
  • Canadian residential property prices (FRED): Up 154%
    • Of course house prices are up much more in places like Toronto and Vancouver.

Eye-Popping Numbers

Restaurant Brands is a Canadian company that owns the following quick serve restaurant brands:

  • Tim Hortons
  • Burger King
  • Popeyes Louisiana Chicken
  • Firehouse Subs
  • PM: I love ‘em all.

They have over 30,000 restaurants in over 100 countries.

4Q/2023 Results:

  • Comparable sales: +6%
    • Tim Hortons: +8.4%
    • Burger King: +6.3%
    • Popeyes Louisiana Chicken: +5.5%
    • Firehouse Subs: +3.5%

PM: Note that growth at Popeyes has slowed from the chicken sandwich frenzy years:

  • 2019: 12.1%
  • 2020: 13.8%
    • That same year:
      • Tim Hortons: -17.5%
      • Burger King: -11.1%
  • 2021: -0.4%
  • 2022: -0.6%
  • 2023: +4.8%

Less Happy

The happiest people according to the World Happiness Report:

  1. Finland
  2. Denmark
    • PM: There ain’t nothin like a Dane.
  3. Iceland
  4. Sweden
  5. Israel
  6. Netherlands
  7. Norway
  8. Luxembourg
  9. Switzerland
  10. Australia

Lower down:
15. Canada

  • Ranking in 2016-2018: 9

20. UK

  • Ranking in 2016-2018: 15

23: US

  • Ranking in 2016-2018: 18

24: Germany

27: France

US Office Vacancies

According to CommercialEdge:

  • The US office vacancy rate is still rising: Now 18%.
    • And office space under construction will increase total office space this year by 1.4%.
  • San Francisco vacancy rate: 23.7%
  • Office property prices are down at least 25%.

I Scream

Unilever owns a number of well-known brands such as:

  • Axe
  • Cif
  • Clear
  • Closeup
  • Dove
  • Hellmann’s
  • Knorr
  • Lux
  • Lifebuoy
  • Pepsodent
  • Pond’s
  • Sunlight
  • Vaseline
  • TRESemme

They also own the following ice cream brands, which last year had €7.9 billion in sales.:

  • Ben & Jerry’s
  • Cornetto
  • Magnum
  • Wall’s
  • Popsicle
  • Fudgsicle
  • Creamsicle
  • Breyers
  • Good Humor
  • Klondike

They have decided to separate the ice cream business from the rest of the group.

As part of a larger efficiency program, they will be letting go 7,500 employees.

Credit Card Delinquencies

According to the New York Fed:

  • The number of auto and credit card loans that are transitioning into serious delinquency (annualised rate) are rising:
    • Auto: 7.7%
    • Credit cards: 8.5%
    • Delinquencies are higher for younger people.

Abortions

Medication abortions in the US now account for almost two thirds of the total (Guttmacher):

2020: 53%

2023: 63%

There were just over 1 million abortions in the US last year.

  • Highest level since 2011
  • But far lower than the 1.5 million average of the 1980s.

UK Inflation: Office for National Statistics

UK Inflation including housing costs:

  • Sep: 6.3%
  • Oct: 4.7%
  • Nov: 4.2%
  • Dec: 4.2%
  • Jan: 4.2%
  • Feb: 3.8%
  • Month-over-month: 0.6% (7.2% annualised).

Goods:

  • Nov: 2.0%
  • Dec: 1.9%
  • Jan: 1.8%
  • Feb: 1.1%

Services:

  • Nov: 6.3%
  • Dec: 6.4%
  • Jan: 6.1%
  • Feb: 6.0%

Core inflation excluding food, energy, alcohol and tobacco:

  • Nov: 5.2%
  • Dec: 5.2%
  • Jan: 5.1%
  • Feb: 4.8%

Big movers up:

  • Transport insurance: +33.6%
    • Last year it was growing close to 50%.
  • Tobacco: +15.5%
  • Books: +13.3%??
  • Package holidays: +11.2%
  • Alcohol: +8.2%
    • Beer: +9.9%!!
  • Chocolate etc.: +8.1%
  • Car maintenance: +7.9%
  • Pharmaceuticals: +7.1%
  • Health: +6.5%
  • Restaurants and Hotels: +6.0%
  • Food: +5.0%

Big movers down:

  • Gas: -26.5%
  • Electricity: -13.0%
  • Used cars: -7.3%
    • Seventh month of declining prices.
  • Car fuel: -6.5%
  • Major appliances: -4.8%
  • Furniture: -1.6%

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Making Excuses?

An opinion piece in the Globe and Mail by Claude Lavoie (Department of Finance from 2008 to 2023.

He claims that the greatest inflation we experienced in forty years was mainly due to supply shocks.

  • And inflation recently coming down is mainly due to supply chains easing
    • And not because of softening demand resulting from higher interest rates.
  • PM: No.  The vast majority of the inflation was caused by an explosion in the money supply, combined with people not being able to leave their homes and spend on services.
    • The amount of cargo containers going through the port of LA during COVID
    • The following is from my post in June 2023:
    • Loaded container imports for the port of Los Angeles
      • 2019: 4.7 million
      • 2020: 4.8 million
      • 2021: 5.5 million (up 15% from 2020)
        • 2021 was the year inflation took off.
          • And of course, the US money supply (M2) went through the roof increasing 41% from December 2019 to December 2021.

NeverGrand

Chinese property developer Evergrande has been charged with fraud by the China Securities Regulatory Commission (Mingtiandi).

  • They claim Evergrande fabricated sales higher by $78 billion.
  • The company was slapped with a fine of RMB4.2 billion (US$583 million).
    • That should help them pay back their loans: $329 billion.
  • PM: Note that most of the debt is owed to local Chinese investors.
    • But international investors are owed more than $20 billion.
    • The company is in liquidation.
    • Stay tuned.

Japan Interest Rates

The Bank of Japan finally lifted its key interest rate out of negative territory.

  • From a range of -0.1% to 0% they have raised rates a whopping 0.1% to a range of 0% to 0.1%.
  • It was the first time the BOJ increased the interest rate since 2007.
  • They will continue monetising the debt with Quantitative Easing i.e. buying Japanese Government bonds.
  • But they will stop buying Nikkei Stock ETFs.
    • PM: Now that they got the stock market back to the highs of 1989.
    • PM: This is classic policymakers focusing on the symptoms of GDP (final spending) and stock markets rather than the fundamentals driven by price discovery in an unhampered interest rate market.
      • This really took off in earnest with the launch of Abenomics in 2012.
    • I had posted the following table back in 2021 to show the cost of monetising the country’s debt and distorting interest rates.
    • Growth in Japan was twice that of the US before 1990.
    • Since then, the US is twice that of Japan.
    • US GDP per capita vs. that of Japan:
      • 1990: 1.4x
      • 2021: 1.7x
 Japan GDP/Capita30yr Growth RateUS GDP/Capita30yr Growth RateGDP Spread
1960$6,261 $19,135 $12,874
1990$28,4225.7%$39,3032.4%$10,881
2021$35,2780.7%$61,2081.5%$25,930
  • Debt to GDP for Japan (IMF)
    • 1990: 63%
    • 2022: 261%

Vive le Kamikazenomics!

Industry In China: Growing

According to the National Bureau of National Statistics China, for the first two months of the year:

  • Industrial production was up 7%.
    • Some of the big gainers:
      • Electric vehicle charging facilities: +42%
      • Electronic components: +42%
  • Property investment is still falling: -9%
  • Retail sales were up 5.5%.
  • Sales of new commercial buildings: Down 29.3%
  • Imports: +6.7%
  • Exports: +10.3%
  • Inflation:
    • Jan: -0.8%
    • Feb: +0.7%
  • Producer prices (industrial):
    • Jan: -2.5%
    • Feb: -2.7%

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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