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- Peak Fossil Fuels Is Next Test for Russia’s Battered Economy 05/25/2020 06:49 AM(Bloomberg) -- The economy of the world’s biggest energy exporter is heading for its deepest slump in more than 10 years due to the fallout from the coronavirus. A bigger crisis may be just around the corner.Analysts at the Kremlin-funded Skolkovo Energy Center warned this month that the nation faces years of economic stagnation as demand for its carbon-heavy exports gradually drops. If Russia doesn’t adapt, budget receipts will “decline drastically” and growth may be limited to less than 0.8% a year for the next two decades, less than a third of what the Economy Ministry is targeting.President Vladimir Putin has relied on high oil prices as a backstop for economic growth -- and his own popularity ratings -- for most of his two decades at Russia’s helm. Now forecasters expect that the coronavirus recession will accelerate the decline in global fossil fuel use, with some even predicting that the peak was in 2019, about 15 years earlier than the Kremlin was expecting.“Oil and gas are becoming just commodities, without the resource rents that were the main driver for the Russian economic miracle at the beginning of this century,” Tatiana Mitrova, director of the Skolkovo Energy Center, said by phone. The coronavirus crisis has likely made the think tank’s economic forecasts even bleaker, she said.The Kremlin is showing no signs that it plans to move away from the current economic setup, under which almost half of budget revenues come from energy exports. Just this month, Rosneft Chief Executive Officer Igor Sechin boasted to Putin about progress made at an Arctic oil exploration project and Gazprom began design and survey work on a new pipeline to China.Crude prices have collapsed about 45% since the start of the year as coronavirus lockdowns sap demand. Although the market has rebounded in recent weeks, the price of Russia’s export blend of Urals crude is still well below the $42 a barrel needed to balance the Russian budget.“The rents that we enjoyed for the last 20 years will never come back,” Alexei Kudrin, the respected former finance minister and now a top government auditor, warned in an article in the Kommersant daily Monday. “That’s a huge challenge for all of economic policy.”The International Energy Agency forecasts a plunge in global oil demand of 8.6 million a day this year, or about 9%, while solar and wind demand increase. The European Union, Russia’s biggest export market, wants to put a Green Deal to become climate-neutral by 2050 at the heart of its plan to recover from the coronavirus pandemic.In a low-carbon development plan published in March, Russia’s Economy Ministry forecast that coal demand will peak before 2035, and oil demand before 2045. The ministry said Thursday it expects gross domestic product to grow 2.8% next year and 3% in 2022.The plan envisages cutting the carbon-intensity of the Russian economy by 9% in the next decade. But greenhouse gas emissions -- the fifth highest in the world -- would still increase on current levels by the middle of the century.“All of the countries that are highly dependent on fossil fuels have said ‘we must change’ for many years, but they haven’t done it because it’s hard,” said Kingsmill Bond, a strategist at London-based think tank Carbon Tracker. “It’s no longer a question of hope, it’s a question of necessity because people just won’t want these highly-priced fossil fuels any more.”Security ThreatKirill Tremasov, the head of research at Loko-Invest in Moscow who is about to take up a new role as the head of the central bank’s monetary policy department, warned in a Youtube post Friday that an acceleration in global decarbonization poses a major risk to growth. Just over a week earlier, Anatoly Chubais, the architect of Russia’s privatizations in the 1990s, said the drop in oil demand is a threat to the country’s national security.Russia ranks 109th in the world for renewable energy capacity, according to Bloomberg New Energy Finance. The Energy Ministry aims to increase the share of renewable energy in power generation from under 1% currently to 2.5% by 2024, a fraction of what other countries are planning.“Nobody raises these questions with Putin, nobody can,” said Georgy Safonov, head of the Center for Environmental and Natural Resource Economics at Moscow’s Higher School of Economics. “Russia is like a huge ship that is moving in the wrong direction. If someone wants to improve part of it, it poses a risk to the whole ship.”(Updates with comment from former finance minister in seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Dow Jones Futures: Breakouts Slowing In Coronavirus Stock Market Rally, But These Five Titans Are Near Buy Points 05/25/2020 03:01 AMDow Jones futures: The coronavirust stock market rally is roaring on, but breakouts are slowing. Apple, Tesla, Microsoft, Google and AMD are near buy points though.
- Europe’s Debt Reckoning May Mean Tough Choices on Who to Tax 05/24/2020 11:00 PM(Bloomberg) -- Europe’s leaders may be united on the need to throw money at economies during the coronavirus crisis, but they have yet to confront how to pay for it all.That reckoning could force governments across the region into tough choices about where to lay the burden among voters already disillusioned with political establishments -- a decade after the global financial crisis presented them with previous bills to settle.Europe’s austerity experiments since then, from Greece to the U.K., provide cautionary tales of either the economic damage or electoral fatigue that spending cuts can cause. With those bitter experiences in mind, politicians are already fielding questions about tax hikes on either wealth or income -- even if they too might threaten to hurt growth.Alternatives include tolerating higher debts such as Japan does, or perhaps trying to inflict a dose of inflation to erode them away -- itself a tax of sorts. With sovereign borrowing costs historically low, such approaches may look tempting as the bills rack up fast. Debt ratios in the euro area and U.K. may top the 100% milestone this year.“There are very few easy or politically attractive ways to deal with this,” said James Athey, a money manager at Aberdeen Standard Investments. “The ideal way to pay for this is to generate growth that’s higher than your cost of funding. Unfortunately, I think that’s going to be very difficult.”As European governments rapidly ramp up borrowing to aid economies, the region’s experience of austerity is framing the debate on how to tackle debt. Applying such medicine too forcefully in Greece in 2010 led the International Monetary Fund to conclude that it had caused more harm than good to public finances and growth.In the U.K., whose 2010 deficit also ballooned to a Greek-like level, austerity under former Prime Minister David Cameron coincided with years of negligible growth. Whether or not that followed from spending cuts, it did fuel discontent that contributed to his political demise when the country voted to leave the European Union.“European governments got worried about the large increase in debt and shifted to fiscal austerity, probably excessively slowing the recovery,” said former IMF Chief Economist Olivier Blanchard.One discussion in Europe is whether taxes should rise when the recovery takes hold. Switzerland’s Social Democrats want higher income taxes, and the U.K. media is also awash with speculation about potential tax increases.A further argument is focused on wealth taxes. The minority partner in Spain’s coalition is mulling such a proposal, while in France, where the government recently reduced wealth tax, economist Thomas Piketty says history shows such measures are the best way of bringing down huge public debt. Camille Landais, a professor of economics at the London School of Economics, even suggests a time-limited, Europe-wide wealth tax.“If there needs to be some form of mild rebalancing of public finances it must be in a way that is fair, and essentially targets individuals that are most able to weather this,” said Landais.German Chancellor Angela Merkel has already been forced to deny any plans for higher taxes for now, while French Finance Minister Bruno Le Maire said he doesn’t want to reapply the country’s levy on wealth. Athey says such reactions are understandable.“The notion of raising taxes that don’t retard growth is very difficult,” he said.The crisis may also reignite calls to change the mindset in the euro zone at least, where German-stipulated limits on deficits and debt were cemented into its monetary union. In Japan and the U.S., higher outright debt loads are accepted for longer while governments stabilize spending and curb borrowings through economic growth, conveniently shifting some of the burden to future generations of politicians too.Helping governments to keep debt costs under control are the actions of central banks. Their hoovering up of bonds has largely removed concerns over spiralling borrowing costs which dominated the early 2010s, and provide a foundation for public finances to start fixing themselves.“The only sensible way out of over-indebtedness or high debts is more economic dynamism,” Marcel Fratzscher, President of DIW German Institute for Economic Research, said this month. “That’s the lesson after the global financial crisis.”Central banks may also face pressure from governments to keep monetary policy loose for longer, tolerating inflation that erodes the value of government debts -- a tactic that helped the U.K. to bring its borrowings under control in the era after World War II.Inflation, while long craved by monetary authorities since the financial crisis, would also hurt savings and evoke painful memories for some countries, from Germany in the 1930s to the U.K. in the 1970s. Fratzscher says that as a policy to reduce debt, it’s “damaging.”But what if debt just can’t be brought under control? William White, a senior fellow at the C.D. Howe Institute in Toronto and a former chief economist at the Bank for International Settlements, says that outcome is a real possibility.“We’re on a bad path here of debt accumulation,” he said. “Thinking much more seriously about debt restructuring in an orderly way is required.”Bloomberg Economics: G-20 Debt DashboardFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Baidu Investors Fell Out of Love Years Ago 05/24/2020 09:00 PM(Bloomberg Opinion) -- Five years ago, Baidu Inc. founder and Chairman Robin Li sat down with Bloomberg News to explain how foreign investors were getting it wrong.Listed on the Nasdaq a decade earlier, shares of the Chinese search-engine provider had taken a beating over the prior year, and Li’s chief complaint was that Americans just didn’t appreciate the coming changes in its business. The trend in China was toward services like delivery and ride-hailing, as well as bookings for restaurants, beauty salons and doctors. This online-to-offline economy would eclipse search revenue, he predicted.Now, it seems that Li has lost patience. Baidu is looking into the possibility of delisting its shares from the Nasdaq and moving to an exchange closer to home, Reuters reported Friday, citing three people familiar with the matter. Baidu thinks it’s undervalued, according to the report.The backdrop to these discussions is rising hostility to U.S. investments in Chinese assets amid worsening relations between the two countries. The U.S. Senate passed a bill last week that would force companies to delist unless they can prove they’re not under the control of a foreign government.That sounds like a good excuse for Baidu to look for the exit. The reality is that investors lost patience with its management years ago. It was inevitable that the company would seek one day to list elsewhere, as Alibaba Group Holding Ltd. has already done. Baidu’s U.S.-traded stock fell 15% between that September 2015 interview and the end of last year, before the pandemic hit. Over the same period, Alibaba climbed 248%.Li’s problem is that his company failed to grasp the transformation he was talking up half a decade ago. While Alibaba and Tencent Holdings Ltd. have successfully moved into new areas like payments and physical retail, and upstarts like Meituan Dianping and Pinduoduo Inc. now dominate delivery and social-commerce, Baidu has barely changed.Its core business still centers on advertising and accounts for 73% of revenue, which climbed just 2% last year. Investments into new realms like artificial intelligence and autonomous driving have yet to bear fruit. Its other major sales contributor, iQiyi Inc., a video-streaming platform that listed separately on Nasdaq in March 2018, continues to lose money.Around the time that Li complained foreign investors weren’t getting it, some of his contemporaries decided to move home where they felt Chinese investors had a better understanding and would reward them with higher valuations. Internet security company Qihoo 360 Technology Co. was taken private by a consortium that included Citic Group for $9.3 billion in December 2015. It relisted in Shanghai in 2018 via the purchase of elevator maker SJEC Corp., and now trades under the name 360 Security Technology Inc. Chinese investors have soured on 360 Security, pushing the company’s market value down by more than a third since February. There’s a warning for Li. Investors in China won’t assign a higher valuation to a returning company unless it has a convincing growth story to tell. Baidu was a pioneer when it listed on Nasdaq in 2005, paving the way for dozens of Chinese internet stocks to follow. Touted as the Google of China, it symbolized the potential of the sector for American investors. Those days are long gone: Baidu has been eclipsed as China’s technology darling by fasting-growing companies such as Alibaba and Tencent.The problem for Li isn’t that investors don’t understand his business. It may be that they understand it too well. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- All the Reasons the Stock Market’s Gains Are Not to be Trusted 05/24/2020 02:56 PMWhen the S&P 500 remains between the two moving averages for at least 20 days, there’s a 72% chance that the next move is down.
- Hedge Funds Have Never Been This Bullish On Alphabet Inc (GOOGL) 05/23/2020 07:38 PMBefore we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out […]