Oil revenues write big cheques: stock exchanges and equity groups targeted

From today’s Sydney Morning Herald:

Abu Dhabi agreed on Thursday to pay $US1.35 billion ($1.57 billion) for 7.5 per cent of Carlyle Group, the world’s second-biggest private equity firm. Dubai and Qatar took competing stakes in the Nasdaq stockmarket, London Stock Exchange and Nordic bourse OMX. Qatar also won approval to examine the financial records of J Sainsbury, the second-largest UK supermarket chain.

The deals are worth $US25 billion, data compiled by Bloomberg shows. The pace of international investments by Gulf states, which earn $US1.2 billion a day from oil exports, is quickening as they seek to diversify. They have already spent a record $US68 billion on overseas acquisitions this year.

“They are not just putting their money in bank deposits and government bonds any more,” said Eckart Woertz, the chief economist for the Gulf Research Centre in Dubai. “They are after strategic assets.”

Strategic assets indeed. Talk abounds moreso about possible take-over action with respect to the London Stock Exchange.

Should be interesting – we should remember, still, what happened the last time a Qatari outfit went in for a strategic asset (and DP World’s picking up of US ports was an accident – those were owned already by a foreign company, just an English one. English is okay; Qatari is not – as though anybody can track ownership of anything these days). DP World had to off-load the P&O part of the English parent, but now we see big stakes being taken in the likes of the Carlyle Group, the Nasdaq and the LSE (and the Dubai Bourse in fact bought Nasdaq’s share of the LSE – it isn’t as though we ought to be protesting against only one of those two partners, now, is it? Though I’m sure we will).

We anticipate the reaction of the local (New York) Murdoch tabloids. If they can STFU about Clinton, Giuliani or the Yankees for 5 freaking minutes.

Copper is off hiatus!

Copper, the wonderful series of single-page miracles drawn by Kazu Kibuishi, mentioned previously, is back! Back!

This means, I take it, that he has pretty well finished his next book, Amulet.

‘Super Euro’?

Oh well. It is a newspaper, after all (actually, to be fair, I believe some politicians are throwing the term around, and were first).

The always-amusing aspect of the declining dollar, relative to the Euro, was foreigners taking cheap, quick trips to the US, shopping and heading back to work on Monday. Except. They (Europeans, certainly) purchase luxury imports when in the US, because they’re already less expensive than in the EU, anyway – thereby exacerbating the US trade deficit! Like I said, always funny.

This drop, however has more serious implications (although I, like those mentioned in this article, simply had not expected them to hit all this quickly).

What concerns economists more, however, is a sharp drop in the monthly survey of purchasing managers in the 13-nation euro zone – evidence that the credit crisis that began in the U.S. mortgage market and infected British and German banks has now seeped into Europe’s underlying economy.

An index of purchasing managers in the service sector dropped four points in September, its largest monthly decline ever, suggesting that commerce here is slowing faster than economists predicted.

Airbus, subject of much of the IHT article, is the best case in point, particularly with regard to very big multinationals, who are making deals in dollars:

Airbus is particularly vulnerable because it earns all its revenues in dollars and incurs about half of its operating costs in euros.

Ouch. Hence the lay-offs. It’s hard on a macro-economy when big manufacturers/employers are made so much less profitable within a week, for reasons entirely outside their market.

Apropos China, the hypocrisy of low-Renminbi-bashing (the extent that European parliaments participated – it was, to be fair, a very American past-time) is being, and will be further, laid bare:

Most European exporters have weathered the rally without complaint, having cut costs and hedged their exposure, either financially or by moving production to non-euro countries. But a noisy minority is starting to agitate, and political leaders, notably in France, have picked up their concerns, lobbying the European Central Bank to take steps to stem the appreciation of the euro.

“We hope the ECB, at its meeting in October, will examine the consequences and take appropriate action,” the French finance minister, Christine Lagarde, said during a visit to China on Friday.

The ECB rejects such demands as political meddling, and it has responded in increasingly testy fashion to statements made by President Nicolas Sarkozy of France and his ministers.

Eco 1 students, remember: serious economies depend, more than anything else, upon central bank indepence. Interest rates are not things to be used to keep currency valued low for the benefit of exporters.

Secondarily, though, we could start seeing some more active management of floats. This one (and this is hardly rare for a macro-economy) is hard to predict. The reasons for the declining Euro are hardly related to the Euro or the European economy – does the European Central Bank really want to start fighting against the low esteem in which the US dollar is beginning to be held? They are the world’s Second Currency, and they can’t easily defeat that.

The upside for the ECB is that the US also wants a stronger US dollar (although Bernanke has a funny way of showing it).

Employment trends and labour supply

This is Australian employment trends and labour supply. I originally came upon the report by the Reserve Bank of Australia (.pdf) over at Crikey.com, who were making light fun of the RBA’s suggestion that our retirees need to get back to work.

Are we at full-employment (trivia: that post, linked, is easily the most popular I’ve ever written. I wish I was earning residuals on the thing)? With unemployment still down at around 4.25 percent, I should think we are. There are some odd quirks in our data, thought, for example:

Labour Force Participation:

Still trending downward for males.

It’s basically up in the things that are driving employment, down in the things we don’t really do anymore (or that we do with ever fewer people: agriculture and manufacturing).

Remember that’s on a log scale (i.e. differences in logs, not of numbers – this means ratios rather than differences. Basically it just makes looking at growth rates easier for our brains).

The advances made in types of hiring (i.e. more part-time and casual work at the expense of full-time work) also have moved participation around for males and females. While participation is steadiliy increasing for females (here according to birth cohort)

It is declining for males

Typically a product of decling access to permanent full-time (i.e. one job = one family, car, mortgage) employment. The other quirk surrounds those older people – who are retiring in greater numbers, earlier:

and, along the way, in greater numbers than the OECD:

Which gives the RBA it’s final word:

The demand for labour has grown strongly since the early 1990s. This demand has in part been met by a large decline in the unemployment rate, especially for young persons seeking full-time employment and the long-term unemployed. In recent years, the strong labour demand has also been met by a rise in the participation rate of older workers, although the stabilisation of participation by prime working-age males and continued increase in participation by females has also been important.

Given the current low rate of unemployment, a continuation of the recent trends that have underpinned the rise in the national participation rate would help meet ongoing labour demand. The fact that the participation rate of older persons in Australia remains below that of other OECD countries suggests that further increases may be possible.

There are, of course and as usual, multiple explanations for the participation rates of older people:

• They’re retiring early because they can afford to (a good thing), or
• They’re “retiring” because they can’t get hired (a bad thing).

The disability statistics suggest at least some of this is happening (retirement due to ill-health is an avenue for older people who can’t find employment):

In which case the RBA’s assessment is probably not worth pursuing, and the reasons are not complicated:

• People retiring early because they can afford to retire early are unlikely to perform the tasks wanted by a NAIRU economy
• People “retired” as disabled or unemployed are unlikely to possess the skills demanded for most of such jobs.

The only real job I ever held, after my first degree, was as statistician for a government rehabilitation service. All I really learned there was the practicality of the interest by government in moving people from disability pensions (costing tax money) to jobs of any kind (paying tax money).

Given the pounding budget surpluses our economy is already paying in, I would suggest that any decision to properly lean on older people and push them back into jobs they (more or less certainly) do not want to do would be a political decision, rather than an economic one.

I do object, more than a little, to the suggestion that, because other countries in the OECD have higher participation in these age groups, we should push for it. In the US older people work because they need the medical benefits – it’s a bad thing, not a good thing, that the US workforce contains a significant number of people made slaves to employer-provided health insurance.

Sweden is another extreme. Formerly home to incredibly low unemployment rates, they suffered such a recession in the early 90s that they’re still recovering (and with quite high unemployment rates). However the Swedish government’s attendance to the activation principle is, for want of a better word, mighty. In the mid-90s fully half of government expenditure went to such programmes, rather than cash benefits. The participation of women in the Swedish labour economy is also quite high (related to a point to be made in just a minute).

My point, I guess, is that we can’t/shouldn’t seek to emulate the participation rates of labour economies that, themselves, we cannot properly emulate. Or, in the case of the US, should not seek to emulate. I’m sure it would be very easy to withhold access to PBS drugs by people aged 55-64 if they won’t work, but good luck winning the election on that platform.

Meanwhile, the problem observed in – I believe – the first post I ever made here, persists. We still have a labour economy built against the participation of mothers, and we still have a political economy built against the introduction of immigrants. I’ve an idea: the Ba’athists in Iraq were all fired, and they (a) had to join the party to work (like communists), and (b) ran the country. Why don’t we invite them all to Australia?