The John Batchelor Show

Wednesday 22 April 2015

Air Date: 
April 22, 2015

Photo, left:  How the TPP and NAFTA are damaging the US economy, by Alan Tonelson.   Matthew Yglesias, who covers economics for the Obama-worshiping Vox.com, is puzzled. Why are American labor unions so passionately opposed to the president’s Pacific Rim trade deal? Among the reason for his mystification: his confidence that “the TPP actually does almost nothing to increase imports of foreign manufactured goods into the United States” that could cost union members their jobs.
Yglesias provides no evidence to support his proposition; perhaps he is swallowing the White House line that, since other economies negotiating the Trans-Pacific Partnership (TPP) are much more closed than the U.S. economy’s, an agreement is sure to bring down more foreign trade barriers than American. But even if this outcome were likely – and I’ve explained why it’s not – all Yglesias needed to do was to peruse the Census Bureau’s website. The trade data he would find make clear that the U.S.-Korea Free Trade Agreement has had exactly that import-super-charging effect.
JOHN BATCHELOR SHOW
Co-hosts: Gordon Chang, Forbes.com, and Dr. David M. Livingston, The Space Show.
Hour One
Wednesday   22 April 2015    / Hour 1, Block A:  Harry Kazianis, executive editor of The National Interest and a senior Fellow for defense policy at the Center for the National Interest, in re:
http://timesofindia.indiatimes.com/india/With-PM-Modi-set-to-tour-Seoul-North-Korea-seeks-more-aid/articleshow/46914753.cms
http://www.bloomberg.com/news/articles/2015-04-19/china-pakistan-to-sign-28-billion-in-projects-during-xi-visit-i8orbgig
---Concerns about Asia; US ships and plane harassed by Chinese military.  It bumps up against, India, Japan, and he US; any incident could spiral out of control.  Xi Jinping romancing Pakistan; Mr Modi is headed to Beijing. Game of Thrones.  Great powers look for sneaky or inobvious ways to gain control. $46 bil into Pak infrastructure and energy. Roads, rail & pipelines into Gwadar, a port that Chinese are bldg up to get to Indian Ocean. reverse, India trying to grow its influence into the Pacific.  Always the danger that signals will get crossed.  North Korea once had a firm bond with Beijing now looking to Moscow, and visiting New Delhi for food aid. DPRK putting all its funds into anti-ship and missile systems while its people are starving.  Beijing an Islamabad: based on giving India a hard time. Watch Indian naval deployments into the Pacific, which will rattle China.   US currently lacks the military wherewithal to back up its interests. Modi in Beijing: "Back off"; then on to Seoul.
Wednesday   22 April 2015    / Hour 1, Block B: Anne Stevenson-Yang, co-founder of J Capital Research in Beijing and author of China Alone: The Emergence from, and Potential Return to, Isolation, in re:  Broad-based capital outflow. Too much growth: you build too much stuff then have to spend time using it up.   Maybe $200 bil capital outflow from China; drop in forex reserves so far this is year is $115 bil. Renminbi depreciating, going from 6.22 to 1, going to 7 to 1.  People then will buy dollars or FrSuisses  . Chinese soft currency; if you think the govt will make it harder then you have to rush out with your savings. Japan's GDP has dwindled for a decade, whereas China's has grown – but where would you rather have your money?  At present, RMB is overvalued so govt is urgently selling down its dollars. China holds a lot of US debt in [nominal?] form in London.  . . .  Iceberg dead ahead.
 http://www.zerohedge.com/news/2015-04-18/china-sees-largest-capital-outflow-three-years-amid-currency-conundrum
Wednesday   22 April 2015    / Hour 1, Block C: Hotel Mars, episode n. Bill Bottke, Southwest Research Institute, Planetary Science Directorate, Institute for Science of Exploration Targets, in re:   The Earth has tides and a beautiful Moon. [See: Science Journal article, "How Did the Moon Really Form?" April 8, 2015]   Once upon a time the Earth had no Moon; a Mars-size planet came by and wham! hit the Earth, creating the Moon.  We think the Moon is a natural by-product of how [everything in the Solar System] formed; the event may have been 100 million years ago? How old is the Moon?  Oldest samples have been heavily beat up and damaged by vulcanism.  In the collision, maybe 1% of the mass of the Earth is ejected and flies around; when it hits asteroid, it created craters; we think some of the meteors falling on Earth today are remnants of that.  Moon now seems to be [4.5 billion years old].  First a giant collision, with a huge disc of debris around the Earth (imagine Saturn's rings). Then it starts to consolidate, begins to form a Moon, which moves away from the Earth. Little moonlets accrete, join the big moon.   All in the first 100 million years of the Solar System.  The younger Moon craters from the Late Heavy Bombardment, 4 bil years ago: destablizing event.   Moon will now be slowly moving away from the Earth for a long time to come.  The probe Dawn around Ceres, the dwarf planet/largest asteroid in the asteroid belt. Velocities,  high heat, melt, impacts, impact-melt, craters. Ceres may be water-rich, might have an ocean subsurface.   . . .  The Moon is still magic. 
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Bottke, W. F., D. Vokrouhlický, S. Marchi, T. Swindle, E. R. D. Scott, J. R. Weirich, H. Levison. 2015. Dating the Moon-forming impact event with asteroidal meteorites.  Science 348, 321-323.   The inner solar system’s biggest and most recent known collision was the Moon-forming giant impact between a large protoplanet and proto-Earth. Not only did it create a disk near Earth that formed the Moon, it also ejected several percent of an Earth mass out of the Earth-Moon system. Here, we argue that numerous kilometer-sized ejecta fragments from that event struck main-belt asteroids at velocities exceeding 10 kilometers per second, enough to heat and degas target rock. Such impacts produce ~1000 times more highly heated material by volume than do typical main belt collisions at ~5 kilometers per second. By modeling their temporal evolution, and fitting the results to ancient impact heating signatures in stony meteorites, we infer that the Moon formed ~4.47 billion years ago, which is in agreement with previous estimates.
Wednesday   22 April 2015    / Hour 1, Block D:  Francis Rose, Federal News Radio, in re: A House subcommittee's plan to cut the budget for the Department of Veterans Affairs by more than $1.4 billion next year will "cause veterans to suffer," VA Secretary Robert McDonald said Tuesday.  Testifying at a Senate hearing, McDonald said a spending plan approved by a House Appropriations subcommittee on veterans affairs was "inadequate" to the growing needs of veterans.
Hour Two
Wednesday   22 April 2015    / Hour 2, Block A: Alan Tonelson, independent economic policy analyst,  RealityChek blog; @AlanTonelson tweet, in re:  Mrs Clinton wisely doesn’t want to talk about trade agreements – esp TPP (Trans-Pacific Partnership) with Asia, and also a big deal with Europe.   Imagine sitting across the table from Bill, who reps NAFTA, and Mr Obama, who reps TPP. To Mrs Clinton's left is Elizabeth Warren, scowling, with the entire Dem Party behind her.  What will she do?  "I had high hopes for NAFTA and TPP, which haven’t worked out, so for ht moment I'll oppose them."  The TPP is made of countries that the US has had trouble trading with: they structure their entire economies to export to the US, not import, Big failures.  . . . ruled by secretive bureaucracies we can barely indentify, let alone eliminate.  Q: absent oil, US is a NAFTA winner? No: Most US-Mexico trade is not in textbooks, not exchange s of finished goods; rather,  the US sells parts and components to Mexico (computers, autos); Mexican assemble, and make parts themselves, and sell it back to the US, since Mexicans are too poor to buy the stuff.   . .  Auto workers in Japan are paid as much as in the US ; the formula crashed the US middle class, the US economy, and the entire world economy: US and foreign companies would place enormous value on US consumers but almost no value on US as workers. Not working!   Feds decided to fill the gap with easy money. Note Fall of 2008. Need reassertion of unilateral US authority to set the terms of trade with the rest of the world, which needs the US mkt much more than the US needs them. In fact, we're growing faster than most of the countries in the TPP. Need equitable terms of trade.
 
http://www.npr.org/blogs/thetwo-way/2015/04/20/401001188/japan-u-s-close-to-major-deal
Wednesday   22 April 2015    / Hour 2, Block B: Mike Davis, professor at Hong Kong University Law School, in re: http://www.cnn.com/2015/04/22/china/hong-kong-electoral-reform-proposal/  C Y Leung and Hong Kong elections. His strategy to win.  Beijing demands to approve all the candidates; result is that the leader has no legitimacy. The Pan-Democratic pols are all committed to vetoing; having been democratically elected, they have more legitimacy than the Beijing stooge chief executive. Sort of like the leaders of Iran or North Korea. China wil ignore Hong Kong people – defy them – and brazenly seize control with no compromise. Excruciating fragility in Mainland. 
Wednesday   22 April 2015    / Hour 2, Block C: Aaron Back, WSJ Heard on the Street, in re: Chinese central bank just cuts reserve requirements – probably because of capital outflows, maybe $40 mil in the last month.  As the Fed may back off, arbitrage. Caveat more defaults in Chinese bond market.   Forex reserves fell $113 bil in Q1 – but most are in euros, which has been falling; the underlying decline may be $40 bil.  The stock market cheers at stimulus, but other markets panic.   Chinese market is dominated by small. private investors, not sophisticated no knowledge of P/E ratios).  The Shanghai market has doubled in a year; capital moving to HK, which has been moving, Dual-listed stocks trading at a 30% premium in Shanghai; also tech – TenCent, Lenovo, listed only in HK.  All rising.  Mkt protected by currency walls.  A lot of these mkts are funded by debt.  Famous Joseph Kennedy moment when shoeshine boy said, "Buy radio."  Too obvious to be called a tragedy; more like a farce.   Demand is failing in China. Only two rational choices are the stock market or put money overseas. Irrrational exuberance, part 2. 
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China Needs to Soothe Pain of Leaky Capital  China's central bank has outflows on its mind.  The People's Bank of China released a spate of monthly monetary data Tuesday and took the unusual step of publishing an accompanying statement, which contained clues as to its thinking and future policy direction. Most notably, Sheng Songcheng, head of the PBOC's statistics department, highlighted the slowdown in money-supply growth. China's broadest official measure of money supply, M2, grew 11.6% from a year earlier at the end of March, slower than the average 13% pace last year and lower than the government's 12% target.
Mr. Sheng linked the slowdown to decreased purchases of foreign reserves by the central bank. Traditionally, the central bank's buying of foreign currency that enters the country has served as the main engine of money creation. When an export company earns a dollar selling goods abroad, the central bank buys the dollar with freshly minted yuan, thus inserting liquidity into the financial system. But in recent months this process has been working in reverse, as investors pulled speculative money out of the country. The PBOC stepped into currency markets in mid-March, seeking to arrest the yuan's decline against the dollar and to guide it in a stronger direction. It accomplishes this by selling dollars and buying yuan, thus taking currency out of circulation domestically.
Mr. Sheng, citing unpublished figures, said the central bank sold a net 252 billion yuan ($40.5 billion) of foreign exchange in the first quarter, with the bulk of that, some 231 billion yuan, in March alone. This shrinks the monetary base accordingly, unless the PBOC takes offsetting action. The central bank has injected liquidity through a number of novel new lending facilities. But the most direct way of accomplishing this is to lower the bank reserve-requirement ratio, unlocking funds in the banking system for new lending. So far, the central bank has cut the ratio just once this cycle, in February.
China likely saw some relief in outflow pressures over the past couple of weeks. By stemming the slide in the yuan, China has signaled to investors that holding the Chinese currency isn't a losing game. And liquidity among the banks is flush for the moment. But the PBOC can't count on strong inflows to drive money-supply growth down the road. Look for more reserve-ratio cuts in the coming months to grease the wheels of China's financial system.
Chinese Banks Put Stock in Management  Share-based compensation is coming for Chinese bank managers, made possible by a powerful stock-market rally. It is a sensible reform, but investors shouldn't overestimate the impact.
China Merchants Bank, a midsize lender, said it will raise six billion yuan ($967 million) by selling shares to employees. Merchants will be the second bank to do so, Minsheng Banking having made a similar move last November. Merchants' Hong Kong shares rose 25% on Monday, despite the offering's dilutive effect and 12% discount to the previous share price.
The offering wouldn't have been possible without the rally in Chinese stocks, which has lifted bank share prices above book value. Below that level, Chinese regulations bar banks from selling shares. As it is now, Merchants' shares will be sold to employees at 1.1 times book value, barely above the threshold.
While the sale will boost Merchants' capital levels, they were already comfortable. The offering will raise its Tier 1 capital-adequacy ratio to 9.8% from 9.6%. Under Chinese regulations, Merchants' minimum will be 8.5% by 2018; investors typically like to see a cushion of around one percentage point above the minimum.
Given the downturn in the economy, investors might appreciate the additional capital. But what excited them more is having a management whose interests are aligned with shareholders' needs.
The irony is that the two banks to try the reform so far, Minsheng and Merchants, are already among the most commercially oriented lenders in China.
The question is which among the state-controlled behemoth banks will launch such a program? Minority shareholders haven't always been a priority at these banks. By aligning managers' interests with those of outside investors, the reform should help improve governance.
Shares of Bank of Communications, which has hinted at introducing "mixed ownership" reforms, rose 6% in the wake of the Merchants news. But China's fifth-largest bank may struggle to launch its own employee-ownership program -- its shares are still at only 1.1 times book value in Shanghai, and under book value in Hong Kong.
And while aligning management's interests with shareholders is positive, it is no panacea.
If the experience of the Western world is any guide, stock-based compensation for bank managers hasn't always led to sensible long-term decision-making. It is encouraging that Merchants will require employees to hold shares for three years.
After Monday's rally, Merchants' Hong Kong shares are now valued at 1.6 times book value, a substantial premium to all the country's other major and midsize banks. Investors shouldn't expect management to work miracles just because they now own a slice of the company
 
Alibaba Health Is A Valuation Hazard   Alibaba Group Holding is injecting its online pharmacy business into an obscure Hong Kong-listed unit. Euphoric investors might want to read the label before ingesting. Last year, Alibaba and Yunfeng Capital, a private-equity firm set up by Alibaba founder Jack Ma, together bought a 54% stake in the little-known company, then called Citic 21CN, which manages data on pharmaceutical products. The company's name was changed to Alibaba Health Information Technology with its shares continuing to trade in Hong Kong.
Now, Aliba is selling its pharmacy business, which sells over-the-counter drugs and medical products, to the Hong Kong unit. In exchange, Alibaba is acquiring more shares at a 20% discount to the previous trading price in Hong Kong. Investors got high on the news, sending shares up 81%.  The move comes just weeks after Alibaba Pictures, a film studio acquired and renamed by Alibaba last year, and which also trades in Hong Kong, said it is weighing acquiring some entertainment-related businesses from the parent company.
For Alibaba, creating specific divisions that focus on specialized areas like medicine and entertainment makes sense. Added focus could lead to a better curated shopping experience and more tailored advertising.  Less clear is why the entertainment and health units should keep trading in Hong Kong. Separate listings for these Ali babies brings little advantage to the parent. It imposes compliance and disclosure costs, and presents potential conflicts between the parent and minority shareholders. The arrangement could just be a legacy of how the companies were acquired - Alibaba bought control on the cheap, taking controlling stakes without buying the whole companies.
For investors, in theory, the listings offer a way to play a particular slice of the e-commerce giant. It also means getting more information on these units than if they were subsumed into the larger company. Online retailing of over-the-counter medicines likely has huge room to grow in China.
Still, Alibaba Health's shares look to be untethered from reality. Its legacy business had sales of just $9.4 million and was money-losing in the 12 months to last September, the last period with available data. The addition of Alibaba's pharmacy business, which had revenue of $16.5 million in the 12 months to March, boosted Alibaba Health's market cap by $6 billion Wednesday, to $13 billion. This means market participants are valuing the new assets at 365 times sales.
That is a monstrous valuation for this Ali baby
Wednesday   22 April 2015    / Hour 2, Block D:  Bret Stephens, WSJ, in re: Israel came into existence in 19548; US held Pax Americana soon before that.  US is now creating power vacuums that are being filled by very bad actors – ISIS, Hezbollah, al Qaeda – and Israel has no US back-up, has to face its existence problems by itself.   A hope that the next president will choose a different policy, but the messes now being created, the chaos, will be hard for any president to clean up. The American people will not eagerly intervene in nuclear showdowns between Saudis and Iranian, or Iranians and Israelis. Israel needs to think seriously about how to conduct itself independently.  / Jordanian king, Saudi king, Egyptian president, all working with Israel now. Much cooperation in Sinai and other places. Robust intell 'twixt Saudis and Israelis.
Hour Three
Wednesday   22 April 2015    / Hour 3, Block A: Monica Crowley, Fox, & Washington Times Online opinion editor; in re:  Ted Cruz Showed Eloquence, and Limits, as Debater at Princeton  By the time he was a senior at Princeton University in 1992, Ted Cruz ...
Wednesday   22 April 2015    / Hour 3, Block B: Monica Crowley, Fox, & Washington Times Online opinion editor; in re: Hillary Clinton Can't Run for President  . . . but only one candidate has ever unrun for the office: Hillary Clinton. Ever since she finally ...   The Questions Hillary Clinton Doesn't Want Answered About the Clinton Foundation  ;  Hillary Clinton Campaign Launches Grassroots Organizing Program In All 50 States
Wednesday   22 April 2015    / Hour 3, Block C:  Simon van Zuylen-Wood, National Journal, in re: "How Washington Derailed Amtrak"
 "Thirty-nine minutes into his southbound ride from Wilmington, Delaware,
to Washington, D.C., Joseph H. Boardman, president and CEO of Amtrak, begins to cry."   In the forty-five years since its inception, Amtrak has become a national embarrassment for America's transportation infrastructure. The passenger rail service, which pales in comparison to its international counterparts, has been slow to innovate and currently runs a deficit with no end in sight. The latest cover story for National Journal magazine uncovers why Amtrak remains a model of mediocrity, and why Washington seems to want it to stay that way even as the country's infrastructure falls apart. READ THE FULL STORY
Wednesday   22 April 2015    / Hour 3, Block D:   Robert Zimmerman, behindtheblack.com,  in re: SpaceX schedules Dragon pad abort test  The competition heats up: SpaceX has now scheduled the pad abort test for its manned Dragon capsule for no earlier than May 5.  This is three days later than previously scheduled, though the previous schedule was quite tentative. This announcement is firmer.
Hour Four
Wednesday   22 April 2015    / Hour 4, Block A: Fierce Patriot: The Tangled Lives of William Tecumseh Sherman, by Robert L. O'Connell (1 of 4)
Wednesday   22 April 2015    / Hour 4, Block B: Fierce Patriot: The Tangled Lives of William Tecumseh Sherman, by Robert L. O'Connell (2 of 4)
Wednesday   22 April 2015    / Hour 4, Block C: Fierce Patriot: The Tangled Lives of William Tecumseh Sherman, by Robert L. O'Connell (3 of 4)
Wednesday   22 April 2015    / Hour 4, Block D: Fierce Patriot: The Tangled Lives of William Tecumseh Sherman, by Robert L. O'Connell (4 of 4)
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