Tag: Economy

「News of the Week」China Q3 GDP Growth Rate: 6.0%

WSJ – China’s economy grew 6% in the third quarter, landing right on the central government’s full-year baseline target for gross domestic product

国家统计局 National Bureau of Statistics of China  – 2019年三季度国内生产总值（GDP）初步核算结果

The percentage growth decrease is high anticipated. The expected value was at 6.1%.

Dots to connect:

  • IMF’s other forecasts
    • cut China’s growth forecast to 6.1% from 6.2% for 2019, and 5.8% for 2020
    • cut India’s growth forecast to 6.1% from 7% for 2019, and 7% in 2020
    • Forecasts for the U.S. were cut by 0.2 percentage point to 2.4% annual growth in 2019; euro-area forecasts were cut 0.1 point to 1.2%
    • Global
      • July version: Global growth remains subdued. Global growth is forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020
      • October version: Global growth is expected to slow to 3 percent this year, picking up to 3.4 percent in 2020 (a 0.2 percentage point downward revision compared with April)
  • China’s monetary policies and debt levels.

Series C-2: Overview of Brazil Electricity System (2)

Organization structure

 

History

 

Before the 1990s reforms, Brazil’s electricity can be characterized by 3 phases[1]:

  • private ownership with minimal regulatory control (until 1930);
  • private ownership with poor regulation (from the 1930s to the1940s);
  • state ownership with centralized control (from the 1950s to the first half of the 1990s)

 

In the early 1990s, the Brazilian electric sector was characterized by: (i) centralization of operation and planning; and (ii) vertically integration of transmission, distribution and generation of the sector[2].

 

Privatization: 1990s reforms

 

In 1995, a major transformation of the existing regulatory framework entered into effect to foster competition10:

  • Private participation in the electricity sector
  • Creation of a new market model in generation and commercialization. The figure of Independent Power Producer and the concept of Free Consumer, was created.

 

From 1996 – 1998, a project to restructure the sector defined the new conceptual and institutional framework to be implemented for the Brazilian Electric Sector10:

  • De-verticalization of the electric power companies.
  • Competition in the segments of generation and commercialization.
  • The State will keep under control distribution and transmission of electric power, considered to be natural monopolies.
  • Creation of a regulating agency, ANEEL (1996).
  • Creation of an operator for the national electric system, ONS (1998).
  • Creation of an operator for the commercial market, MAE (1998).

 

The energy crisis of 2001 – 2002[3]

 

Whilst the reforms of the late 1990s were a bold attempt to overhaul the failing system which preceded it, serious issues remained in the sector which the initial reforms failed to address. Growth in capacity continued to lag far behind growth in demand, and the country relied heavily on hydroelectric generation for 80 per cent of its electricity. Delays continued in the expansion of the sector due in part to the uncertainty in the definition of pass-through prices which complicated pricing mechanisms. After a few years in which average rainfall had been significantly lower than expected, reservoirs were depleted, and strict demand reduction programs had to be implemented by the Crisis Management Board, established and led by President Cardoso in June 2001. The Board had powers to implement emergency measures such as special tariffs, compulsory rationing and blackouts. Additionally, the government established a quota system based on historical and target consumption levels, and a corresponding bonus and penalty scheme whereby consumers were rewarded or penalized according to whether they fell within or exceeded their quota.

 

The government’s goal to reduce consumption by 20 per cent was achieved, and the quota system proved so effective that the government paid out over US$200 million in bonuses to residential, industrial and commercial consumers. Additionally, the government succeeded in avoiding blackouts and brownouts during the crisis. The response to the crisis was successful in reducing consumption and conserving resources. The biggest losers in the crisis were generators and distributors who inevitably experienced significantly reduced revenues.

 

The 2004 model

 

Following the energy crisis in 2001-2, and the election of the new administration led by Luiz Inàcio Lula de Silva in 2003, there was some speculation that the initial reforms of the late 1990s might be rolled back. As the reforms of the 1990s were so closely followed by the energy crisis, there was widespread criticism and skepticism of the new model, and some expectation that the sector would be fully regulated and effectively returned to government control. However, contrary to these expectations, the new administration continued to seek long-term private investment into the sector, and to introduce more competition into the market to drive efficiency that would protect the interests of captive consumers. The institutions established by the reforms of the 1990s were preserved and in many cases strengthened, and further reforms were implemented, including the introduction of energy auctions, to consolidate and improve the new model11.

 

In 2004, the Brazilian government implemented a new model for the electricity sector. One of the main components of the new electricity model was the creation of two energy trading markets, as showed in the figure: a Regulated Contracting Environment (RCE) where a pool of distributors buys power from generators in public auctions under set prices and a Free Contracting Environment (FCE) where free consumers and generators can freely negotiate their own bilateral contracts[4].

 

 

This hybrid approach to government involvement splits the sector into regulated and unregulated markets for different producers and consumers. This approach allows for both public and private investment in new generation and distribution projects. Under the plan, Eletrobrás was formally excluded from privatization efforts. In August 2017, the Brazilian government announced its intention to divest its controlling stake in Eletrobrás. The sale will not include Eletronuclear (a nuclear power company owned by Eletrobrás) or the Itaipu hydroelectric dam6.

 

According to a Reuters report in Feburary 2019, Eletrobrás manages power plants that generate about a third of Brazil’s electricity needs. It also controls power transmission lines that account for half the electricity transported throughout the country. The privatization likely will happen through a capitalization plan in which new shares would be offered to investors in a process that would dilute the largest shareholder, the Brazilian government, to such a level that it will no longer hold a controlling stake[5].

 

Summary of major changes10

[1] https://www.aneel.gov.br/documents/656835/14876412/Artigo_Ludimila_Silva.pdf/a4758c18-441a-4647-967f-9a29d912c425

[2] https://www.eba-net.org/assets/1/6/Energy_Bar_Ass_Brazilian_Power_Sector_Chang.pdf

[3] http://www.mondaq.com/brazil/x/93780/Oil+Gas+Electricity/Brazils+Electricity+Market+A+Successful+Journey+And+An+Interesting+Destination

[4] https://pdfs.semanticscholar.org/5473/9da77745a629b6bf7d78bc122827d83ea097.pdf

[5] https://www.reuters.com/article/eletrobras-capitalization/update-1-brazils-eletrobras-privatization-plan-could-be-ready-by-june-minister-idUSL1N20M14C

Series C-1: Overview of Brazil Electricity System (1)

Overview of Brazil Electricity System

 

The electricity sector in Brazil is the largest in South America and the third–largest in the Americas behind the United States and Canada[1].

 

Sources

 

Brazil is the second-largest producer of hydroelectric power in the world, after only China, and hydropower accounted for more than 70% of the country’s electricity generation in 2018[2].

 

 

Located on the border between Brazil and Paraguay, Itaipu Hydroelectric Dam is the largest operational hydroelectric energy producer in the world, with an installed generation capacity of 14GW, accounted for ~25% of Brazil’s hydropower generation[3].

 

Brazil’s National Interconnected System consists of four subsystems: South, Southeast / Midwest, Northeast and most of the North region[4]. Less than 1% of the country’s electricity consumption is located outside the SIN, in small isolated systems located mainly northern region[5].

 

Transmission system

 

Most of Brazil’s hydroelectric plants are located in the country’s Amazon River basin in the north, but Brazil’s demand for electricity is mainly along the eastern coast, particularly in the southern portion. Reliance on hydropower for most of the country’s electricity generation, combined with the distant and disparate locations of its demand centers, has presented electricity reliability challenges2.

 

Because most of Brazil’s generation capacity is located far from urban demand centers, significant investment in transmission and distribution systems is required. The Madeira transmission line, completed in 2014, is the longest (until the completion of 2nd phase of Belo Monte transmission) high–voltage, direct–current line in the world and spans 1,476 miles to link hydropower plants in the Amazon Basin to major load centers in the southeast. Increased emphasis on distributed generation will help reduce the need for additional transmission infrastructure in the future[6].

 

As of October 2017, Brazil’s transmission network comprised 136,835 km of lines and 343,816 MVA of transformer capacity at the 230 kV to 750 kV levels. During 2006-16, the line length increased at a CAGR of 4 per cent and transformer capacity at a CAGR of 6 per cent. In December 2017, State Grid Brazil Holding (SGBH), the Brazil-based concern of China’s State Grid Corporation of China (SGCC), put the country’s largest ±800 kV high voltage direct current (HVDC) line into operation. This was the first transmission line associated with the 11.2 GW Belo Monte power complex[7].

 

Usually, HVDC lines of 800 kV or more are commonly referred to as UHVDC (ultra-HVDC)[8]; DC = direct current.

 

In the United States, most long-distance transmission lines operate at 230kV, 345kV, 400kV or sometimes 500kV, where kV stands for thousand volts. In Britain, most of the National Grid operates at 275kV or 400kV23.

[1] https://www.eia.gov/beta/international/analysis.php?iso=BRA

[2] https://www.eia.gov/todayinenergy/detail.php?id=39692

[3] https://www.itaipu.gov.br/en/press-office/news/itaipu-records-fourth-higher-annual-production-2018

[4] http://www.ons.org.br/paginas/sobre-o-sin/o-que-e-o-sin

[5] http://www.ons.org.br/paginas/sobre-o-sin/sistemas-isolados

[6] https://www.eia.gov/beta/international/analysis_includes/countries_long/Brazil/brazil_background.pdf

[7] https://www.globaltransmission.info/archive.php?id=32000

[8] https://www.navigantresearch.com/news-and-views/hvdc-the-future-of-long-distance-and-renewables-transmission

China’s “Dual Pricing” System

Just landed in China last week.

So “dual pricing” sounds a little bit bizarre.. It’s not something like two menus, but it does exist in some way.

One example is the prices in restaurants/dining rooms affiliated with state-owned-enterprises (SOEs) or established traditional corporations. The price in restaurants in the same/nearby block would be 4-10 times more expansive (food quality and others things adjusted).

This is actually similar to what US tech companies provide – free lunch. The difference is that US tech companies actually pay a lot for those food as an employee benefit, while the cost for established/connected Chinese companies are very low.

Essentially, there are some places in China that are not affected by as much inflation as other parts are. And throughout the pat 10-20 years, the “dual pricing” has become increasingly evident. (US tech companies’ free lunch is actually on par with the inflation I think)

Another example is “friendship-based” transactions. It is more like the world in the “exchange economy” so that goods/services are not priced in numbers. Due to the nature of exchange, there will be no/little markup in “prices”.

Say Service A costs $100 and is usually priced for $1,000; good B costs $50 and is usually priced for $500. Then exchange based transaction would probably involve one A and two B (the value of which depends on people’s perceptions, say $300 but no money exchanged), while money-based normal business would involve two $1,000 transactions.

Friendship-based economy exists everywhere I believe and is a very natural/common development in history. Since China’s friendship-based transactions are more pervasive and maybe represents a higher percentage of the “economy”, it does create another “dual pricing” in China.

 

 

 

 

Airline Operation Results 2017 & 2018

Wrote a little python… to extract the monthly operation results from airlines, and calculated load factor change, RPM change and ASM change.

  • RPM = Revenue passenger miles, and its percentage change year-over-year
  • ASM = Available seat miles, its percentage change year-over-year
  • Load factor = RPM / ASM, its change year-over-year
  • RPM_g = RPM(t) / RPM (t-12) – 1
  • ASM_g = ASM(t) / ASM (t-12) – 1

I did Alaska and Southwest tonight and will add more…

Data Download:

Alaska Air Group operation results

Southwest Airlines operation results

Saudi Arabia: Surplus to Deficits, Turnaround, Diversification

Saudi Arabia’s financial situation has been closely linked to oil prices.

Saudi Arabia Oil and Non-oil revenues 2012 to 2016 | Source: Saudi Arabia Ministry of Finance statement about the national budget for 2017

The majority of the revenue is from oil exports. Its oil revenue has decreased more than 50% due to the oil price slump in 2014.

Oil comprises 30-40 percent of the real GDP of Saudi Arabia.

Saudi understood the need to diversify decades ago. It became more serious after the 2014 oil price shock. But that means more expenditure and efforts to push for the economic reform.

A “Vision 2030” was announced in 2016. (original English copy)

While expenditure kept increasing, Saudi government has quickly generated its deficits since 2014. Deficit in 2015 is at a similar level of its surplus in 2012 – a SAR 740 billion difference in 3 years. And debts are accumulated quickly.

Saudi has planned to eliminate its deficit by 2023, which could be easily done if oil price maintains.

In Dec 2018, Saudi released its budget of 2019, which includes an expenditure of over SAR 1 trillion and a deficit of ​SAR 131 billion.

While the sixth straight deficit is not something to worry about, the real question is to what level Saudi can diversify its economy and becomes a sustainable nation even without oil. (the contribution of non-oil revenues to total revenues up from 12% in 2014 to 32% in 2018)

Canada Housing Problems

Talks around Canada’s housing market have been surging – about its booming prices and about its looming risks.

The price side – directly shown by its pricing index from Statistics Canada – plotted below from Jan. 2006 – Oct. 2018.

Canada Housing Price Index | Source: Author, Statistics Canada

Toronto’ prices are the most wild in among Canada’s housing markets – nearly doubled in 39 month from Jan. 2014 to Apr. 2017.

Toronto home prices 2014 – 2017 | Source: Financial Post

The price itself is not actually something to worry about. But as FT argued, “House prices have raced ahead of wages for years, boosted by loose lending, low interest rates and lax controls on foreign money.” Similarly on Huffpost, “Toronto’s house price index doubled between 2011 and 2017, even as household incomes grew by single percentage points.”

And let’s take a look at the housing debt level – the risky side.

Bank of Canada said the two trillion dollars of debt is around 170% of disposable income.

I double checked with OEDC data here.

Here is a historical comparison –

and housing debt versus GDP – just passed 100% for 2017 Q2.

The regulator took actions to cool down the market.

The short-sellers/investors took theirs too.

Home Capital is at the center, Canada’s largest provider of home loans to the newly arrived and self-employed.

Home Capital Stock Price (C$) | Source: Bloomberg

In Jun. 2017, Warren Buffett’s investment vehicle Berkshire committed to acquire a 38.39% stake as part of a rescue package (C$2.4 billion, including C$400 million equity and C$2 billion credit line with 9% interest rate). The first tranche of equity investment acquired a 19.99% ownership.

However as the second tranche of equity investment wan’t approved, now in Dec. 2018, the updates came as Buffett would sell most of its stake and reduce ownership level to less than 10%.

Home Capital is under control and stabilized now.

A single crisis is easier to solve than a systematic problem between housing prices and local income.

 

油价十连跌创纪录

这周五的WTI原油价格历史性连跌创 34 年以来最长记录（1984年7月）。借这个机会，来谈谈未来石油的角色。

电动车与新能源汽车

内燃机是一项伟大的发明，由此诞生的汽车经济体量难以估量。很难想象没有内燃机的当代社会能有什么工业生产，交通运输会是怎样。在人类文明史上，内燃机应该有与互联网一样的地位。

从全球原油用途的角度看，当下约有 60% 的需求来自交通运输（陆路，航空、航运等）。其中陆路运输占其中近 80%。大概是每20桶油有9桶用于陆路运输这样的比例。

另一个全球共识，各国家地区都已宣布并付诸实践的，是大力推动新能源汽车的发展，最具代表性的就是Tesla为首的电动汽车。按照各自的时间表，内燃机车的销售还能有10-20年。实际我认为电动汽车时代会来得更快，就像iPhone短短两三年就能让诺基亚和黑莓成为历史。虽然汽车相比于手机周期会更长，但变革来临时，用脚投票的消费者往往超出现有预期。最好的证明 – Tesla Model 3 在今年第三季度已经成为美国最受欢迎销量最好的车型。

眺望一下全球45%的石油需求可能消失的2050年，油价是什么？普通消费者完全不需要有油价的概念，这是一个淡出视野，出现在历史课本里的词汇。

沙特的焦虑

所以说，依靠原油作为主要经济来源的国家都得找出路。沙特首当其冲，也最具代表性。沙特土豪形象深入人心，靠着地下天然资源硬生生造出了一股强大的经济力量。

最能体现沙特的焦虑的，大概就是参与软银的基金。作为 Softbank Vision Fund 最大 LP，沙特在软银帮助下，频频出手在全球找未来行业进行大手笔投资。科技虽然是一个行业，但科技也是一个改变各行业的行业。所以，沙特／软银的投资不能单纯说科技导向，而是diversify + growth + market leader导向，比如 uber（交通），wework（商业地产），compass（住宅地产），guardant health（癌症检测）等等。

贵没有关系，要的是有分量的股权。

Tesla的创始人Elon Musk曾说有可能私有化，依靠沙特的资金支持。这是一笔很合理的买卖。Tesla是沙特地底黄金贬值的始作俑者，买Tesla算是一笔国运hedge。不过想靠私有化Tesla延缓电动汽车时代的到来并不现实，Musk也不会让出他的愿景。有科学的投资，沙特不一定要买Tesla；而且软银也投了其它电动汽车，比如Lucid Motor。

其它
  1. 各国家地区都在为未来30-50年的这个变化做出准备。加拿大选择了大麻业作为一个新增长点也是合情合理。
  2. 电动汽车时代到来只是早晚问题。石油的陆路运输需求会大幅减少，但在其它领域将依旧发挥重要作用。以Elon Musk的SpaceX为首的新一代太空运输，将补上部分石油需求，甚至大大超出现有需求；在可预见的未来，原油依旧是航空业的主力能源。石油在加拿大经济中也有重要作用。
  3. 发展中国家和地区的汽车行业可能还有增量市场。部分可能选择接受发达国家的传统汽车工业转移；部分可能选择传统汽车+新能源同步发展。有远见和能力的国家和地区可以全面地主动地拥抱电动汽车，直接跳过部分内燃机时代的基础建设和社会形态，走向世界最前沿。

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Gig Economy & Employment Issues in the 21st Century

今天公布的美国上一周 (9/23 – 9/29) Weekly Jobless Claims 降至 20.7 万例，接近 49 年低点。49 年最低点在两周前触及，9/9 – 9/15 那周的 Initial Jobless Claim 为 20.2 万例，是 1969 年 11 月以来的最低点。

昨天公布的 nonfarm private sector employment 数据也很出色，增加 23 万例。市场对于明天将公布 non-farm payroll 数据期望相当之高。

8 月的 unemployment rate 已降至 3.9%。Full-employment 社会的话题今年以来获得更多关注…

但在经济数据的背后，不应该忽视的是新型商业模式对于这些数据的影响 – uber, lyft, airbnb, grubhub, etc… so called “gig economy”。同时，原先简单粗暴的 employed/unemployed 划分已经不能充分反应新经济的就业问题。

把旧的思维模式强加在当前经济模式下，必然会有各式各样的问题：

  1. 原本 unemployed 人口通过 uber 等公司作为收入来源，没有 actively looking 或者没有 desire for or availability for work；然后一部分也不会当自己是 employed，由于是数据来源是 survey，最终导致部分人口没算在 labor force 里，不算做失业人口。一个参考是 08 – 13 年 labor participation rate 的下降。
  2.  gig economy 中的 “employer” 各方面没有保护，比如最低工资保障 mini wage，健康保险 health insurance，养老 pension，失业保护 unemployment insurance 等
    • 各州对于相关纠纷的判决有所不同，但都开始关注 independent contractor / employee 的问题。
    • 参考 case 1：加州 Lawson v. GrubHub，2 月 Judge Corley 支持 independent contractor [trial court]；在下面的 case 之后，5 月 Lawson 上诉至 U.S. Court of Appeals for Ninth Circuit
    • 参考 case 2：加州 Dynamex Operations West, Inc. v. Superior Court，4 月底 California Supreme Court 支持按 employer 的划分，并采用 ABC test
      • (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
      • (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
      • (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
    • 参考 case 3：纽约州 The New York State Unemployment Insurance Appeal Board 于 7 月支持 uber driver 在失业保险方面应算作 uber 的 employee
    • 相关 case – 领取失业福利的同时开 uber：Lowman v. Unemployment Compensation Board of Review [Pennsylvania Commonwealth Court]，“by occasionally accepting offers of work such as that afforded by Uber, an individual does not make a ‘positive step’ toward establishing an independent business”，参见 Bruce L. Baldwin 文章
  3.  under-employment 问题。当前 gig economy 中的 independent contractor 更偏向于 lower-skilled 工作；以及拉低整体的 productivity。这是个更长期的问题。

BLS 有一项统计，在 2017 年 5 月，美国约有 1.6 million electronically mediated workers, accounting for 1.0 percent of total employment；uber 今年 9 月在自己的 blog 中称已有超过 90 万的 driver，两个数据也算 consistent。

下图来自今年 9 月 JPM 的一篇 research，更直观，但有 bias，在 JP Morgan 开户的人更可能参与在 gig economy 中

从整体看，这还不是一个大规模群体，但不难想象这是一个持续增长的群体。在 AI 和娱乐的未来，gig economy 的作用将更加明显。

下个十年食物增量 – 非洲的谷物，印度的乳制品，中国的肉类

一篇关于未来十年全球农业发展的研究 – OECD‑FAO Agricultural Outlook 2018‑2027

Bloomberg 依此做的一张图拿来分享一下，原文链接

未来十年农业／食物增长主力将来自非洲和印度。不过这项研究的 assumption 是中国人口净增长放缓，到 2027 年近乎于 0 增长。

以及这项研究大部分结论都参照的是上涨前的油价。通过各种 pass through 以及肥料等成本提升，石油价格对食物价格影响不可忽略，并反而影响供需关系。

但各地区对于不同食物的 prefer 程度，确实值得参考。以及附上下图供参考，原文链接