Dirty floats, (III)

Following Dirty Floats I and Dirty Floats II, comes Brazil’s latest move into the Club For Carriers Of Big Sticks.

Brazil will create a sovereign wealth fund with the primary aim of intervening in foreign exchange markets to counter the appreciation of Brazil’s currency, according to Guido Mantega, finance minister.

“It will have the function of reducing the offer of dollars in the market and helping the real to appreciate less,” he told the Financial Times.

Honestly. Give some people a barely-accessible-maybe-superfield and they think they can do anything. The full transcript of the interview here. Some interesting views on taxation and tax reform, at least. Back to the sovereign wealth fund:

FT: What about the sovereign wealth fund that you announced in October. How are plans progressing?

MR MANTEGA: This is a normal reaction of a country accumulating foreign reserves, giving it greater fire power in its international reserves. All countries accumulate reserves and this is nothing different from what other countries do.

What we want to do is something very modest. Our reserves will soon reach $180bn. Along side the reserves we will create a fund to buy dollars in the market. It will be defined by law, it doesn’t exist yet so it needs new laws. It will have a limit of say $8bn, $10bn to be accumulated over time. Today it is the central bank that buys dollars. In future we will have the fund also buying. It will have the same function as our reserves, to take out excess liquidity of dollars that cause the currency to appreciate. So it will have the same function as central bank intervention in foreign exchange markets.

…

FT: Aren’t sovereign wealth funds usually created by countries with surplus income either from government-controlled exporters or from other budget surpluses? That isn’t the case in Brazil.

In oil exporting countries with sovereign wealth funds, either the exporting companies are public, so their revenue is primary income, or the countries charge a tariff, which is also primary income. That is one model. Other countries, for example India, aren’t like that. It has a nominal budget surplus and reserves. So our primary budget surplus is identical to having reserves, it is equal to our reserves.

I do believe he will find that opinions differ, on a few of those points (and others, such as using the fund to enhance capitalisation/liquidity for Brazilian firms when they try to make plays overseas).

Why worry? Besides the fact that Sovereign Wealth Funds are just plain dodgy; this one in particular plays at managing the erstwhile floating exchange rate of the Real (this is not unusual: a “dirty” float is a managed-within-certain-parameters floating exchange rate. Bobbing exchange rate, if you like: not allowed to go too far in any direction), but not in the manner of the erstwhile independent Central Bank.

This means, naturally, that the management of the float need not be undertaken solely according to the relatively benign criteria of price/money stability. With his talk of aiding Petrobas, in fact, Mantega has signalled precisely the opposite.

The fund will also, it seems, encroach actively upon the Central Bank. Back at the interview:

… our primary budget surplus is identical to having reserves, it is equal to our reserves.

Our reserves will continue to rise. Every day there are excess dollars in the market. Every day the central bank buys a billion or half a billion dollars and puts them in the reserves. With the sovereign wealth fund we will have another agent doing currency auctions and buying dollars. So instead of the central bank buying a billion, like yesterday, the central bank will buy half a billion and the fund will buy the other half.

So now the Central Bank, formerly able to buy dollars independently of the government, can now only do so half as much. The other half is managed out of the Treasury.

This basically reads, in toto, as a fairly structurally deliberate move away from Central Bank independence (or further away: I don’t really know how Brazil rates). Just imagine the US, UK, etc. equivalent, though. The US Treasury department taking over half of the reserves with which the Federal Reserve manages the US dollar (hypothetically. Supposing somebody managed it). I’m assuming – hopefully correctly – that we’d hit the damn roof.

Idea for hemp

I think I was talking about this with my wife. I have a fairly decent stock of tee-shirts; a lot (I think). Having given up practically everything else going, I’ve been seriously considering abandoning cotton for hemp. Honestly, though, what holds me back is the clothing itself. I certainly understand and accept the McDonough argument against prints on tee-shirts, but: given a choice between a black hemp tee-shirt, and any of my band tee-shirts, I will take the latter.

So my idea (I was reminded of this, actually, writing about BP and Shell). Why doesn’t someone big like Threadless.com throw up a new business model: you can have what you like, and you can have it on hemp for $X more. Because I have those $X. I would pay those $X.

On the other hand, Big Oil went in on the infrastructure to start with

This is not to suggest that I’m happy with Shell and BP abandoning their renewable energy projects: I just acknowledge that, perhaps, those projects would not have existed, had the likes of Shell and BP not started them up in the first place.

Shell, the oil company that recently trumpeted its commitment to a low carbon future by signing a pre-Bali conference communique, has quietly sold off most of its solar business.

The move, taken with rival BP’s decision last week to invest in the world’s dirtiest oil production in Canada’s tar sands, indicates that Big Oil might be giving up its flirtation with renewables and going back to its roots.

… at a time when interest in solar power is greater than ever, with the world’s first “solar city” being built at Phoenix, Arizona, a small announcement from Environ Energy Global of Singapore revealed that it had bought Shell’s photovoltaic operations in India and Sri Lanka, with more than 260 staff and 28 offices, for an undisclosed sum.

The sell-off, to be followed by similar ones in the Philippines and Indonesia, comes after another major disposal executed in a low-key way last year, when Shell hived off its solar module production business. The division, with 600 staff and manufacturing plants in the US, Canada and Germany, went to Munich-based SolarWorld. Shell has however formed a manufacturing link, with Saint-Gobain, and promised to build one plant in Germany.

The Anglo-Dutch oil group confirmed yesterday that it had pulled out of its rural business in India and Sri Lanka, saying it was not making enough money.

We should also bear in mind that this is photovoltaic energy: hardly the most lucrative or cost-effective of the Renewables – some of which are being retained:

The oil group said it was continuing to move its renewables interests into a mainstream business and hoped to find one new power source that would “achieve materiality” for it. Shell continues to invest in a number of wind farm schemes, such as the London Array offshore scheme, which has government approval. Shell has also been concentrating its efforts on biofuels, but declined to say whether it had given up on solar power even though many smaller rivals continue to believe the technology has a bright future.

There follows a standard form of critique (this was a quote: this is not from the writer of the article):

“… the oil majors, including Shell, had invested time and energy in promoting their plans for renewable energy in the press and on TV, but were not able to lead the transformation the world needs towards renewable energy and energy efficient solutions.”

Who ever said that they should? They’re corporations, not saints. Big, nasty, smelly, evil corporations, sure. They operate according to the profit motive; according to Cost-Benefit Analyses and analysis of what a market will bear. Would we rather they pour more energy into bringing this initiatives in the proper mainstream of base load? Sure – but that doesn’t mean that they should. Why should they?

When we all stop wearing cotton and eating things built almost entirely from corn and soy, we can start moving on the moral high ground.

Until then, we need to accept that markets are made up of free agents. If we want to get upset, we should be upset about such companies receiving sweetheart deals on access to public land. We should be upset that so much Farm Aid goes to corporate addresses in Manhattan, yet almost no real subsidisation of renewable energy exists. Agents in an economy will only do what their incentives tell them to do: corporate incentives are bundled up in the next AGM. Anyone who wants to make a difference should push SRI and investor activism; run for state legislatures on clearly-defined platforms of public investment in renewable energy and protection of the common treasury.

Aquacultural economics!

From the Times-Picayune, via Grist.

… with the United States importing 80 percent of the seafood it consumes, the pressure is coming from high levels of government to find alternatives.

“We are already consuming a tremendous amount of farm-raised fish,” U.S. Commerce Secretary Carlos Gutierrez said at a conference on offshore aquaculture earlier this year. “We might as well do it ourselves under our terms, under our conditions, under our standards, and take the market.”

I can’t argue with the logic. I like fish. I’ve mentioned fisheries a few times, here. I don’t eat the stuff, of course, but that’s neither here nor there.

What’s the problem here, exactly? To my mind, it’s basic economics. If demand exceeds supply, then the price has to go up. I went through this with regard to French fishermen and gasoline prices. Why do we insist upon this idea that, somehow, prices have to stay “low”? Prices are determined, one way or the other, by Supply and Demand. Pressing for subsidies is a mistake; over-fishing one’s own waters, then those of every other poor country that one can find is criminal; throwing in with massive fish-farms is a mistake.

An interesting perspective:

One company that has ventured into the field is Kona Blue Water Farms in Hawaii. The company produces 20,000 pounds a week of a boutique Hawaiian fish called Kona Kampachi, found in some organic food stores and many restaurants on the West Coast. That is about half the amount of red snapper brought to shore each week in Louisiana.

Chief executive Neil Sims has received numerous federal grants for hatchery research on other species, but he said the company is likely years away from turning a profit. Given the cost of shipping from Hawaii, Sims said expanding to other parts of the country is critical for success.

“You grow your own grains. You don’t chase chickens around in the wild. You don’t chase cows, so why would you only focus on wild fish?” Sims said. “Other countries understand that logic, and these countries are welcoming that.”

Without legislation to expand his business to federal waters, he said he plans to move some operations into Mexico.

I don’t know where this guy has been, but we do rather concern ourselves with the health and environmental consequences of Concentrated Animal Feeding Operations. Setting up Oceanic CAFOs, when the oceans already have enough problems, is probably not wise.

Ultimately it won’t matter. Less-tasty, utilitarian animal proteins are, more likely than not, the way of the future. I’m often asked whether I’d eat petri-dish-grown animal meat. Probably. I can always eat anything biblically: boil away all the taste and blood, just leaving fuel. We cannot, however, pursue increasing wealth, increasing sophistication, increasingly cosmopolitan lifestyles and tastes (including palates) and assume nature will keep feeding us. Natural resources are, typically, fixed in supply.

What’s USD30bn to China, anyway?

More finance. I need to get back to something Environmental, or cars, or something.

China is to treble the amount of money that foreigners can invest in the mainland capital market, making the long-awaited announcement on the eve of this week’s high-level economic summit between Chinese and US policymakers.

The State Administration of Foreign Exchange, the country’s foreign exchange regulator, said on its website on Sunday that the quota for registered foreign investors would be increased from $10bn to $30bn. It could take several months before institutional investors secure fresh quotas.

Good for openness in foreign capital movement – don’t get me wrong – but before we get too carried away, don’t forget how much capital going out: that USD30bn compares with a few hundred billion US dollars in Sovereign Wealth Fund money, not to mention new, looser, rules for their total capital outflow.

Baby steps are still steps, of course.

Conrad Black update

For the few among you who even care. Six 1/2 years.

Conrad Black was on Monday sentenced to 6½ years in a federal prison for his role in the multi-million dollar fraud at Hollinger International, the newspaper company he created and controlled.

Apropos my earlier questioning, concerning the differences between Conrad Black and Jeffrey Skilling:

… the crimes of Skilling and Lay could reasonably be supposed to have been undertaken in order to save the company (in an “I can win it back!” sense, sure, but nevertheless). Their fraud was massive, but their motives could have been more benign than we are given to believe. Not so with Conrad Black. He wasn’t covering up over-valued stocks, he was paying his wife and himself a tonne of money, throwing birthday parties for his wife, getting nice apartments, etc.. There was nothing benign about it.

There will probably be no problem with conviction, but this makes sentencing interesting – will Conrad Black get a lighter sentence than Jeffrey Skilling because he didn’t hurt as many people as badly? Should we draw parallels between attempted murder and manslaughter? As Sideshow Bob complained, they don’t give a Nobel Prize for attempted chemistry?

It turns out that, yes, the whiteness of one’s collar always pays off.

Judge St Eve said it was appropriate to use sentencing guidelines set in 2000, which were more lenient than current standards. She rejected prosecutors’ arguments that Lord Black should be considered a ringleader in the fraud, but added that she would also not consider the former chairman and chief executive of Hollinger a minor player.

…

In remarks before the ruling, Judge St Eve took a conservative estimate of the damage Lord Black’s fraud wreaked on Hollinger investors.

Prosecutors had urged the judge to find that Lord Black’s scheme resulted in $32m in losses for Hollinger. Instead, Judge St Eve ruled that the total damages were worth $6.1m.

So. Lightly off he gets (all things considered).