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Is The World’s Largest Planned IPO Kaput?

Is The World’s Largest Planned IPO Kaput?

That would the long planned and widely advertised IPO to sell 5% Saudi-government-owned ARAMCO, estimated at being worth US $2 trillion, making the planned IPO being at about $100 billion, well ahead of any that has happened in the past, the largest being $25 billion by AliBaba. This has been a crucial part of Crown Prince Mohammed bin Salman (MbS) has had this as a central part of his Vision 2030 plan to privatize and diversify off oil the Saudi Arabian economy.  Most of the publicity about it over the last year or so has focused on which exchange would get all the fees (easily up to $1 billion, still real money), NewYork, London, Frankfurt, or maybe even Riyadh, for hosting this massive IPO.

Now in the last few days there are numerous reports floating around the internet declaring that at a minimum this IPO has been postponed, with quire a few now saying that the IPO is completely off, that the Saudis are now looking at a different approach, although exactly what that is or will be is very much up in the air. Sorry I have been unable to make the link,but this can easily googled, a story out today on this from Oil.Price.com by Kurt Cobb, “Was ARAMCO IPO Destined to  Fail?” which obviously suggests that it is kaput, although the article recognizes it may simply have been postponed. He provides links to some other reports engaging in various bits of speculation.  So what has happened?

Cobb provides two leading reasons why the IPO may be off.  One is that they may not need the revenue as much as they did a year ago  because of the roughly 50% increase in oil prices.  This makes sense.  Going along with that is that apparently they seriously do not want to be open to some external audit of their reserves and finances and so on.  This also also looks reasonable, with certainly all of the non-Saudi exchanges would make such a demand.  Maybe they might not have this demanded on the Riyadh exchange, but it is not a large exchange, and even there such a demand might be made.

Now it might be that their finances are fine and they do not need the money the IPO would have brought in. However, some of the sources Cobb links to report that the Saudis are contemplating various peculiar schemes for, well, raising money.  One of these involves a scheme to have ARAMCO take over a Saudi refining company and then issue a bunch of bonds on it.  This  all sounds a bit fantastic and not too likely, but the hard fact is that Saudi finances are highly opaque, which is a main reason they supposedly do not want to do the IPO, and there certainly have been a variety of efforts by them to reign in public spending.  Higher oil prices have certainly loosened some of this pressure, but exactly what is going on is far from clear. But at a minimum, it appears that the ARAMCO IPO has at least been postponed and may be totally kaput.

Barkley Rosser

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Germany Organizing Anti-Trump Coalition

Germany Organizing Anti-Trump Coalition

Mark Thoma th other day links to a story in Der Spiegel about a visit to Japan by new German Foreign Minister, Heike Maas.  He met with PM Shinzo Abe, and apparently the two of them agreed on the need for creating a network of like-minded nations that wish to maintain portions of the “post-war order,” especially in the areas of trade policy rules and climate change agreements.  All of this is in reaction to actions by Donald Trump in both areas.  While Maas is fairly new in his office, reportedly the planning for this started under his predecessor and in conjunction with discussions in Paris and Brussels.  Supposedly the last straw was Trump’s performance at the NATO summit.

Supposedly non-EU nations that may be joining this erstwhile coalition include beyond Japan: South Korea, South Africa, Australia, Argentina, Mexico, and Canada, with the foreign minister of the latter about to visit Berlin.  I guess we shall have to see how this works out.

Of course, much of the US media that should know better is still oohing and ahhing over the sjupposedly great deal cut between Trump and Juncker, which happened apparently on the same day as this meeting between Maas and Abe.  Today’s WSJ had a headline quoting Kudlow that US-EU negotiations on “agriculture” are about to start.  Almost certainly, to the extent this is true at all, this will involve only to get more specific about Juncker’s promise that the EU will increase soybean imports from the US (see pgl’s recent post here on all that).  It absolutely will not go beyond soybeans, even if somehow Trump thinks it will.

An earlier Der Spiegel article reported that Trump specifically requested of Juncker that the increase in ag imports go beyond soybeans, and Juncker firmly said no, soybeans only.  Anybody fantasizing that some big and general US-EU ag negotiation is about to start is seriously ignorant.  The Common Agricultural Policy (CAP) of the EU is both expensive and extremely politically and diplomatically complicated and controversial, having developed after many heated disputed among EU nations.  No way is Trump going to be allowed to just barge into that mess, where he might get sprayed with manure by French farmers (they did that once to an earlier French leader they were unhappy with).  The only reason soybeans are not such a big deal in the EU is that few countries grow them and they are just not that much used in European cuisines, for better or for worse.

Addendum:  I have just checked on EU soybean production.  No EU member is among the top 11 producers, and no EU member is among the 53 soybean oil producers.  Really. Some other European nations are in on the latter, including Norway and Switzerland, and Russia is 11th in soybean production. My bet on which one is the largest soybean producer in the EU is probably Italy, which is among the top three in soybean yields, with Turkey tops in that category.

Barkley Rosser

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Has Trump Won This Easy Trade War With Our Greatest Foe, The European Union?

Has Trump Won This Easy Trade War With Our Greatest Foe, The European Union?

So Sean Hannity would have us believe this evening after the press conference earlier today by Trump and EU Commissioner Jean-Claude Juncker.  According to Hannity they have signed a “deal” that will help US businesses, workers, and farmers. Yowzah!

As it is, what appears to have been agreed to (no signed deal) is that the US will not impose tariffs on autos imported from the EU as he had threatened to,  a proposal not supported by the US auto industry, the erstwhile beneficiary of such an action.  This means that the EU in turn will not impose a bunch of retaliatory tariffs against various American products.  So, the trade war sits where it is, with US tariffs in place on foreign steel and aluminum, with a set of retaliatory tariffs on a variety of US goods all still in place.  The war has not been won, merely that its momentum has slowed.

Ah, but then there was the dramatic announcement by Trump that there will be negotiations with the EU that will move to end all tariffs, subsidies, and other non-tariff trade barriers in all non-auto industrial sectors.  He then reeled off a set of other sectors in which negotiations would occur, although with not quite such a strong promise regarding what might result, with at the end of the list being soybeans, which Trump declared “is very important.”  Indeed.

What all this brings up is how does this relate to the long-running negotiations over trade and investment that went on between the US and the EU that Trump shut down last year?  This would be the Transatlantic Trade and Investment Plan (TTIP, or T-TIP for some parties).  This negotiation began under Obama in 2013.  Between July 2013 and October 2016 there were 15 weeklong rounds of negotiation regarding 28 topic areas, some of them those mentioned in today’s press conference by President Trump.  On none of those 28 was there a full agreement as of the final round of negotiations, although some were further along than others. It had been estimated that it might take until 2021 to complete this negotiation, and that made back when there still were negotiations.

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Meanwhile, Saudis Stuck On Oil Thanks To MbS Crackdown

Meanwhile, Saudis Stuck On Oil Thanks To MbS Crackdown

Saudi Crown Prince Mohammed bin Salman (MbS) has a plan to get Saudi Arabia off oil, with an immediate push to create 1.2 million private sector jobs by 2020.  However, as Juan Cole reports, his political crackdown last year in which over 300 people were tossed in jail  for various supposed crimes, with many of them now having frozen bank accounts and other restrictions placed on them, has somewhat scuttled this project badly.  700,000 foreign workers have left,and foreign direct investment has fallen from $7.42 billion in 2016 to $1.32 billion in 2017.  Oooops!  This is not the way to  wean the nation off oil.  Nobody wants to invest because they fear MbS will go on another rampage, seizing money and putting people in prison.

Of course, it is now clear that Trump and his son-in-law, Jared Kushner, encoureaged MbS in his coup against his cousin, former Crown Prince Mohammed bin Nayef.  They also supported his stupid war in Yemen and initially encouraged him in his campaign against Qatar, still ongoing although a total flop, although on that one Trump has figured out that the largest US air base in the Persian Gulf, al-Ubeid, is there, so he has lost his enthusiasm for this particular stupid project of MbS’s.  Unfortunately, there is little prospect this 32 year old leader will be removed from power any time soon.

Barkley Rosser

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Screenwriter Dies at Age 100, Of “Rashomon,” 1950, Greatest Film of Japan Ever.

Shinobu Hashmoto just died at age 100. His original screenplay for the greatest movie ever made in Japan was initially written while he was recovering in a Japanese hospital for war veterans.with him having tuberculosis. It is famous for showing how different observers of reality may have different views of that reality. The film’s director was Kurowsawa, who worked closely with Hashimoto on many of his films. Regarding the greatest of them all, “Rashomon,” even though now many see it as the ultimate inside view of Japanese culture, not to mention its far broader philosophical implications, when the film was being made,three assistant directors objected to the making of as they “did not understand” what the film was about. The following is an English translation of Kurowoawa’s reply to his assistant directors, as reported by Harrison Smith in his WaPo obit of Hashimoto:

“Human beings are unable to be honest with themselves about themselves. They cannot talk about themselves without embellishing. This script portrays such human beings — the kind who cannot survive without lies to make them feel they are better people than they really are . . . You say that you can’t understand this script at all, but that is because the human heart itself is impossible to understand. If you focus on the impossibility of truly understanding human psychology and read the script one more time, I think you will grasp the point of it.”

Barkley Rosser

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The Most Important Issue At Helsinki

The Most Important Issue At Helsinki

No, folks, it was not the much ballyhooed issue of Russian election interference in 2016, which got so much attention because of Trump’s bungled and false statements at the press conference. Oh yes, for those of us who are convinced he is a bought out stooge of Putin, this all was very delicious, but it was far from the most important issue dealt with in Helsinki.

As always, the most important issue between Russia and the US is nuclear weapons, not Ukraine or NATO expansion eastward or even Putin murdering innocent opponents. Of course we have this awful problem that we in the US do not know what was discussed for 2 hours privately between Trump and Putin in Helsinki. We are getting claims out of Moscow about supposed deals made, mostly about Syria in terms of specifics, but there remains zero knowledge among US authorities supposedly responsible for these matters of what the deals are or their details. As it is, most of the Syrian stuff looks like basically status quo arrangements made on the ground between US and Russian military, most of this dating back to the Obama era. We needed a summit for this?

Anyway, getting back to the most important issue, nuclear weapons, what we have been provided with is a vague and confused statement: that the INF and “new” START treaties “will be extended.” Well, that sounds nice, but it has some problems, especially with the INF part, although given that START was an Obama treaty with Medvedev, this is some solace given Trump’s propensity to simply end anything that Obama did, just because.

The Intermediate Nuclear Force (INF) was agreed to in Dec. 1987 by US President Ronald Reagan and Soviet President Gorbachev. It is a permanent treaty requiring no special extension. It bans missiles of intermediate range of especial danger to NATO nations in western Europe. Until 2014 it was followed by both sides. Then in 2014 Putin adopted the RS-26 missile that violates the treaty, although he has denied it does. But US SecDef Mattis thinks it does.

So, what Trump should have had as his top priority in Helsinki and before while visiting NATO allies, whom he dissed, including the EU as our “worst foe,” would have been to demand that Putin get rid of the RS-26 missile that violates the INF treaty. Instead we are told that he and Putin have agreed to “extend” it and the START. This is plain awful, but not surprising.

Barkley Rosser

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Trump Tariffs Hit Largest US Aluminum Company, ALCOA

Trump Tariffs Hit Largest US Aluminum Company, ALCOA

In the history of antitrust law, one of the most important rulings by the US Supreme Court came in 1945, when the Aluminum Company of America (ALCOA), long based in Pittsburgh with heavy Mellon family ownership, was ordered broken up for being a monopoly, following a ruling by Judge Learned Hand.  This was the famous “per se” ruling that said that simple domination of an industry by size was sufficient in the end to justify breaking it up.  However, with the entry of Reynolds and Kaiser into the industry, ALCOA was in the end able to fend off being actually broken up, and today it is still the largest aluminum company in the US and sixth in the world, with Century Aluminum second in the US and Kaiser third. While still with most activity in the US, ALCOA is a multinational company operating in many nations around the world.  Until 2016 it operated in all sectors of the industry, but then spun off some of its specialized processing for auto and aerospace inputs into the Arconic company.

Today stock of ALCOA fell over 4 percent on a report from the company of it expecting to see a , substantial decline in profits in the coming quarters due to the imposition of tariffs on aluminum by President Donald Trump.  So, his imposition of tariffs on aluminum, designed to aid US aluminum producers, will be causing a substantial decline in profits for the largest aluminum producing company in the US.  What is going on here?

It appears that the problem is that the US is increasingly a net importer of unprocessed aluminum that is the main input for companies that process aluminum, which is what ALCOA mostly does, even after spinning off Arconic.  The US has never been a major producer of bauxite, the original source of most aluminum, only producing about 1 percent of global supplies of it.  In term of producing unprocessed aluminum, the US reached a peak in 1980s, with this now only about a quarter of that level today. The US imports $23.4 billion of aluminum products, with nearly half of that, 46.8 percent to be precise, being unprocessed aluminum.  So ALCOA is importing a lot of the unprocessed aluminum it uses to produce aluminum products.  Unlike American steel companies, whose main inputs of iron ore and coal are domestically produced, ALCOA is more like an automobile company that is hurt by the tariffs on steel, which raise its costs.  Thus it is not surprising that the US aluminum industry more broadly has opposed the Trump tariffs, in contrast to American steel and coal companies supporting the steel tariffs.  I note that the US exports some finished aluminum products, but far less than it imports.

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Is Trump Bailing Out Soybean Farmers Or Not?

Is Trump Bailing Out Soybean Farmers Or Not?

Chinese tariffs on US soybean exports have now kicked in, with China half the US soybean market, and exports much more important for soybeans than for corn, with the US producing half the world’s corn, but exporting less of it than soybeans.  Upshot is that while soybean prices have fallen roughly 20% since Trump started his trade war, corn prices have fallen noticeably less.

Recognizing that soybeans are very important in some key pro-Trump states like Iowa, North Dakota, and Indiana, he has promised to provide aid for them, even as he has at times said that the victims of his trade war will be “patriotic” and continue to support him, even as they lose their jobs, farms, businesses.  Googling suggests that he has himself has not followed through on supporting his damaged soybean farmer supporters, but in fact the situation is unclear.

I have made my annual visit with my old friend who is an Indiana farmer, among other things.  He is glad that he planted more corn than soybeans this year, given that corn prices have fallen so much less than have those of soybeans.  But he tells me that even though the internet says Trump has done nothing to follow up on his promises to help out the soybean farmers, there is a new USDA program to  provide some sort of assistance to soybean farmers.  He has signed up for it, but so far has received no clear information of what is going to come out of it.

As near as I can tell what this might be is a resurrection by somebody at USDA inspired by Trump of the old Commodity Credit Corporation programs that date back to the Great Depression and are still on the books.  I do not know if this is the case or not, but it is hard to see what else it might be. As it is, my friend is curious and hoping to get some assistance, but whether any will actually be forthcoming, much less how much or to what degree Trump actually has anything to do with it specifically, remains up in the air, as does so much else about the Great New Trade War of Donald J. Trump.

Barkley Rosser

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Pruitt’s EPA Trashing Benefit-Cost Analysis Of Environmental Policy

Pruitt’s EPA Trashing Benefit-Cost Analysis Of Environmental Policy

Scott Pruitt increasingly looks the worst of the worst out of the appalling cabinet of President Trump, quite aside from his race to become the single most corrupt cabinet member in the entire history ofthe US.  The latter is trivial compared to his policy change after policy change that will increase pollution in the environment and end up killing people, to be blunt about it.  But now the Environmental Economics blog reports that since June 7 Pruitt’s EPA has been planning to distort benefit-cost in a way to make it less likely to support environmental policy enforcement (sorry not able to make link to site work).

In particular they are planning to eliminate counting “co-benefits” of policies. Only what a policy is specifically directed at can be counted. So, if one looks at coal burning and wishes to limit particulate emissions, then one cannot count co-benefits such as reducing SO2 and mercury emission.  This is simply outrageous and makes no sense whatsoever. But indeed, Scott Pruitt may be the worst cabinet member in US history, and Trump seems to be in no hurry to remove him, indeed, defends him.

Barkley Rosser

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Refurbishing The Trump Economics Team

Refurbishing The Trump Economics Team

Rumors are floating on the internet that NEC Chair Lawrence Kudlow is looking for new people to join the team advising President Trump on economics.  Of course, the obvious place to start would be with him, a non-economist, although he has played one on TV a lot, who also has one of the worst documented forecasting records around, poo-pooing both the housing bubble and the early signs of the Great Recession a decade ago, along with forecasting a hyper-inflation out of Obama fiscal policy, although one must grant that he later admitted he was wrong on that one.  He can also be credited with mocking Trump’s proposed tariffs, until he was appointed to his current position, where he  now says all this will lead to improved trade deals.  We shall see.  Anyway, it might be worth reviewing the current troops, probably the sorriest collection of economic advisers any president has ever assembled.

We have Treasury Secretary Mnuchin.  Another non-economist, he can claim to be a billionaire and have a trophy wife, which certainly impresses Trump.  He has supported the Trump tax plan along with clearly flawed projections.  However, on trade, like Kudlow, he looks better than the three actually handling trade policies, and has had shouting matches in front of Chinese negotiators with Peter Navarro, an actual PhD economist out of Harvard, long at UC-Irvine, who now is chief adviser on trade.  Some decades ago he wrote not-too bad articles and books on various topics, but has not had an academic article in over two decades, not that this is the end of the world.  What is closer to that is that he has since written books  not only calling for trade war with China, but even outright war.  This is what caught Trump’s eye, and, of course, he has advocated harder lines than Mnuchin in those reported screaming matches.

I must note at this point my extreme annoyance that the media has completely dropped the ball on China openly bribing Trump with a half billion dollar payment to his organization in Jakarta three days before he announced that we must save jobs at certified national security threat Chinese company TZE.  I see references to our deal with them, but the press simply never mentions this massive payment to Trump, surely the largest presidential bribe in history, if not to any US government official ever, although maybe in real terms some of those payments in the Grant and Harding admins were larger. But they were not to the presidents, and they all came from domestic bribers, not involving national security threats.

Also on trade we have none-economist Wilbur Ross.  He comes from the steel industry, enjoying the first round of protection from Trump tariffs.

The we have non-economist Trade Representative, Attorney Robert Lighthizer.  Now he does have some experience, having been Deputy Trade Rep in 1983-85 when Reagan had his round of trade protectionism, mostly directed at Japan.  Lighthizer notes that when defending current policy, but his firm has also supported the steel industry in trade issues.  He has become entrenched in his full hawk position since leaving the Reagan admin.

We get a slightly brighter light if we look at powerless CEA Chair Kevin Hassett, another actual PhD economist formerly at the Heritage Foundation.  People tell me that he is actually a nice guy personally, and mostly not just batshit insane or incompetent.  OTOH, he was coauthor in 1999 with James Glassman of that insightful best selling book, _Dow,36000!_.  Yes, still waiting on that one.

One area where somehow Trump seems to have been more cautious is the Fed.  Of course he should have reappointed Janet Yellen as Chair, but she had to go as an Obama person, not to mention a short woman.  Jerome Powell is more central casting and a Republican.  While not an actual economist, he is like Hassett not too unreasonable, “Janet Yellen lite,” and indeed probably better than some of the gold bugs and general loonies that some GOP Congresspeople were pushing.  Maybe that is his real estate background wanting someone who will not make interest rates go blooey all of a sudden.

I close by noting that among those Kudlow is reportedly mumbling about bringing on board as something or other, the only name I recognized was Stephen Moore, who has been at Heritage at times, not sure he is now.  Last I heard out of him his one suggestion of what needs to be done, and supposedly this is being seriously vetted by some on the current team as well as some in Congress, is more tax cuts for the rich.  Really.  Clearly at the top of our needs.

Oh, I suppose one could also list non-economist Mick Mulvaney, currently running both the budget shop while taking apart the consumer protection agency. But then he is rumored to be possibly about to become Chief of Staff replacing John Kelly.  Oh goody.  What a crew.

Barkley Rosser

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