Breakdown – npr.org
Major items: $350 billion in loans to small businesses, $500 billion for loans, loan guarantees or other aid to corporates, unemployment insurance, direct payments, etc.
Tag: Economy
End of Decade Thoughts (1): An Increasingly Divided United States
This is a series about what we have seen in the past decade.
An Increasingly Divided United States
Three aspects:
1. The 2008 financial crisis provided a great opportunity for those who had equity while made many others in debt work years to recover. And the tax reform exacerbated the process.
– When we entered the past decade, prices were cheap for a lot of equities, but only for those who can buy.
– Differences were then created when the economy recovered – those who held equities enjoyed it.
– On the other hand, those who can’t buy didn’t share the growth (in any bull markets like stock, housing, etc.)
– Thus, more wealth inequalities were created. Supporting evidences could be found for a graph
「News of the Week」US China Agreed on Phase I Deal
WSJ – U.S., China Agree to Limited Deal to Halt Trade War
Dots to connect: US Ag growth, China financial services opening & public market reform, Chinese stock moving up, remaining US tariff on Chinese machinery, electronics and furniture, China IP improvements and growth in IP-driven industries, etc.
「News of the Week」Walmart Continues To Grow
If we need one figure this week to tell how the US economy is going – then the Walmart US store comparable sales is the one: 3.2% yoy.
WSJ – Walmart’s Sales Growth Streak Hits Five Years
Dots to connect: inflation, Walmart’s online sales growth, international sales growth, tariff impacts, etc.
「News of the Week」China Q3 GDP Growth Rate: 6.0%
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.
- China’s central bank injects ¥200 billion market liquidity via MLF at 3.3%
- China’s new LPR and interest rate policy
- the PBoC cut the one-year LPR on August 20, from 4.31% to 4.25%; five-year LPR rate unchanged at 4.85%.
- cut one-year LRP again on September 20, from 4.25% to 4.2%
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:
Saudi Arabia: Surplus to Deficits, Turnaround, Diversification
Saudi Arabia’s financial situation has been closely linked to oil prices.
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)