Feb 28, 2015

Ghost of Jack Lang haunts Victoria as Premier threatens to renege deal | The Australian

WHILE Tony Abbott’s continued blunders and lack of support among his colleagues dominate our headlines, world debt markets are deeply concerned about the state of Victoria.
Not since the Jack Lang NSW crisis of 1931-32 has a state premier raised the possibility of a state not honouring the financial debts incurred by previous governments. The circumstances in 2015 are ­entirely different to 1931 but Victoria’s decision to play a dangerous game could affect the whole nation.
And paradoxically, Abbott’s planned attack on Chinese and Asian property investors compounds the dangers for Australia.
In the case of Lang, the commonwealth honoured the debts of NSW and then extracted the money from the rogue state. We are not headed that way in 2015 but at least one developer in Victoria has been told that their Singapore financing is now in danger because Victoria is threatening to renege on an obligation to international debt markets.
The world never expected that anything like this could ever happen in Australia.
But Abbott now sees this unbelievable situation as his potential ticket to a second term as Prime Minister — if his party gives him the chance. Abbott’s greatest asset against Bill Shorten will be the Opposition Leader’s support of the “rogue” Victorian Premier, Daniel Andrews.
For those not familiar with what is happening in Victoria, some background is useful: the East West Link toll road was a project that was backed by former Labor governments and continued by the Coalition government when it came to power in 2010. But the project dragged on and the Coalition government rushed into agreements near the end of its term. Some six weeks before the election the opposition said it would not honour the contracts and would not build the toll road.
The decision was partly motivated by the need to make sure the Greens did not win inner-city seats. Labor won the election.
When the now Premier Daniel Andrews as opposition leader said he would not honour the contracts of the previous government in the East West Link, he thought he was cancelling a project like a bridge or a block of apartments — a relatively simple exercise.
But the first stage of the East West Link was a massive tunnelling project, which required a huge purpose-built tunnelling machine. The East West Link construction had a tight timeframe, so the overseas group building the machine contracted the supply of all the tunnelling machine parts and engineers. Stopping that tunnelling machine/building contract requires a huge expense. Similarly, the global financing of the project was embedded into the world’s complex derivatives network. There are big break fees.
In the global drilling machine market no one — not even the Greeks — has ever behaved in this fashion before. If Andrews proceeds with his threat, Victoria will be blackballed in major tunnelling projects. And of course in the middle is a dismayed international partnership that includes Lend Lease, which contracted to build the East West Link.
When a small-time Australian premier wants to take on the world capital and construction markets, he has to be taught a lesson. And he will be. The people in Sydney will laugh that Victoria is to be punished for electing such an inexperienced person as premier. But all of Australia will suffer if our second-largest state turns rogue.
Victoria has three choices — pay $1 billion to stop an essential piece of infrastructure; take on the world capital and construction markets; or arrange for the $1.5bn-$2bn in state government funding required for the project be paid and allow the project to continue.
In my view, if Andrews does not want to build the East West Link he needs to honour, in full, the finance break fees and all obligations to the tunnelling machine contractors and others who committed to the project. That appears to involve an outlay of about $1bn. Victorians must cop it sweet — they elected him.
Victoria can test the contracts in the courts, but if the state passes legislation to renege on the obligation then Abbott, or whoever is prime minister by then, will need to consider following the prime minister of 1932, Joseph Lyons, to protect Australia’s reputation.
And, of course, the commonwealth must insist that the money it paid to fund the East West Link be returned.
Yet Abbott is also gambling with the world capital markets by threatening to change the rules on Asian investment in Australian residential property. If there is any element of retrospectivity in the changes then the damage done by Victoria to our reputation will be multiplied. Tens of thousands of Australian apartments are set to be built on the basis of 10 per cent deposits paid by Chinese and Asian investors. And it’s in Victoria where most of the investment is set to take place.
These are not good times for Australia and we could see a sizeable rise in unemployment and further blows to the dollar. Yet this country is on the edge of Asia and has magnificent potential.
No state has more potential than Victoria, which is why the Chinese and Asian investors have been so active here.

Climate alarmism rests on faith | The Australian

AFTER two stints as pope of the Intergovernmental Panel on Climate Change Rajendra “Patchy” Pachauri has seized the opportunity of a pause in global warming to announce, first, his resignation and, second, his undying faith in the cause.
In a letter to be read from pulpits and weather stations across the world, Dr Pachauri vindicates the trust placed in him as pope of the IPCC by declaring that for him, “the protection of Planet Earth, the survival of all species and sustainability of our ecosystems is more than a mission. It is my religion and my dharma.”
It doesn’t take much faith in the scientific method to accept, as The Australian does, that during the past century or so industrial development and greenhouse gases have been associated with rising temperature. But it’s the overheated rhetoric on climate that shows we are often dealing with a dogmatic quasi-religion, not science.
Lightning and a thunderous voice from the clouds may announce a revelation that believers revere as settled doctrine. But science has a habit of unsettling; as surprising results mount up, they put yesterday’s theories under strain. The current pause in warming may — or may not — mask an underlying trend that fits the global warming thesis. The general mechanism whereby greenhouse gases trap energy emitted by the Earth and push up its temperature may be well understood but much else is not — and should not be anointed as dogma.
Climate models are attempts to mimic the complex interplay between human activity and nature; it’s dopey to hold them out as prophecy. The degree of man-made warming to come, its likely effects good and bad, and the case for remedial action balanced against other claims on scarce public resources are all matters for expert advice, rational debate and decisions open to review as new data comes to hand.
It’s not blasphemy to probe the data, expose the false alarmism of the now notorious “hockey stick” graph or point out the lousy track record of climate models. It’s basic economics and common humanity to wonder aloud whether improving water quality in poor countries would be a better use of funds than the more speculative climate mitigation projects.
Yet, as the 2009 Climategate emails showed, those prone to alarmism react to dissent and debate as if they are high priests of a besieged cult rather than scientists open to inquiry. Dr Pachauri’s panel serves up ex cathedra rulings on phenomena beyond its control and unbelievers — even “lukewarmers”, in the memorable coinage of Matt Ridley, former science editor of The Economist — find themselves anathematised.

Feb 27, 2015

Amazon looks to 3D printing trucks | Allie Coyne

Retail giant Amazon has floated the concept of equipping trucks with 3D printers to create products on demand and on location in an effort to them to customers faster.

According to patents filed this week with the US Patent and Trademark Office, first reported by3Dprint.com, Amazon is looking for a way to reduce delivery times by utilising 3D printing.
Customers could order an item from Amazon and have it delivered that same day - without Amazon needing to stock the inventory or ensure the product's availability.

In its patent filing, Amazon highlighted current challenges raised by being forced to store a large inventory, time delays resulting from locating items its warehouses, and their effect on the speed of delivery and resulting customer satisfaction rates.

Ascent of the robots has begun, and it’s not good for humankind | Andrew Keen

RECESSION is when your neighbour loses his job. Depression is when you lose yours, Ronald Reagan quipped. Catastrophe, Reagan might have added, is when you, your neighbour and half the other people in your street lose their jobs too.

We are, I’m afraid, on the brink of such a catastrophe. A 2013 study of 700 professions by two Oxford researchers, Carl Frey and Mich­ael Osborne of the Martin School, warned that 47 per cent of all jobs in the US and Britain are at risk because of computerisation.

The race against the machine has begun. And we are being outrun, outgunned and outflanked by today’s increasingly widespread network of digital devices and ­algorithms.

“It is an invisible force that goes by many names,” wrote Derek Thompson, of the magazine The Atlantic. “Computerisation. Automation. Artificial intelligence. Technology. Innovation. And, everyone’s favourite, robots.”

Or maybe we should just call it big data. “We identified several key bottlenecks preventing occupations from being automated,” Frey and Osborne noted ominously. “As big data helps to overcome these obstacles, a great number of jobs will be at risk.

“The robots are coming and will terminate your jobs,” warns the normally cheerful British economist Tim Harford in typically forthright language. Harford is right. The robots are indeed coming, and computerisation, automation, artificial intelligence and big data are about to destroy many of our livelihoods.

You’ve probably heard this warning before. But this time it’s different. This time there are billions of reasons — about 50 billion reasons within the next five years, to be precise — why we should all be terrified of computerised artificial intelligence.

I’m not alone in my fears, which The Wall Street Journal columnist Daniel Akst calls “automation anxiety”. Some of our leading scientists and technology entrepreneurs are taking this anxiety to an apocalyptic conclusion.

Stephen Hawking, Britain’s highest profile living scientist, for example, warns that what he calls “full artificial intelligence” could “take off on its own” and “spell the end of the human race”. Things could get so bad, Hawking fears, that we may need to “expand our horizons” to another planet if, indeed, “we are to have a future”.

Elon Musk, a Silicon Valley entrepreneur who is chief executive of Tesla electric cars, is equally fearful, warning artificial intelligence is “summoning the demon” and, being “more dangerous than nukes”, represents humanity’s “biggest existential threat”.

Microsoft co-founder Bill Gates concurs with Musk and admits he does not understand why more people are not concerned about the impact of artificial intelligence on jobs.

Google’s executive chairman, Eric Schmidt, told the 2014 World Economic Forum in Davos that the “race between computers and people” will be the “defining one” for the next quarter-century.

The study of this imminent techno-apocalypse has now captured the attention of leading Oxbridge boffins. Cambridge recently opened a Centre for the Study of Existential Risk, funded by the Skype co-founder Jaan Tallinn, which studies risks to our entire species with a particular focus on artificial intelligence.

Oxford’s Future of Humanity Institute has published a study envisaging the ways in which the world could be destroyed. The probability of artificial intelligence bringing the world to an end was estimated at as high as 10 per cent.

The Oxford study — like Hawking’s prediction that a disaster to our planet will be a “near certainty” in the next 1000 or 10,000 years — was speculative, perhaps even science fictional. But robots aren’t just inchoate threats, a distant horde of mechanical orcs on the theoretical horizon.

As Frey and Osborne warn, not only are they at our gates, but they are also in our gates, in our homes, in our cars and, most eerily, in our pockets. Like so much else about our hyperconnected and technologically saturated world, the reason for this lies with Moore’s law — the prescient 1965 observation by Gordon Moore, the co-founder of Intel, that the number of transistors on a processor of a given size will double every two years.

Moore’s law has enabled the ubiquity of network computing, driving our reliance on desktop computers, then laptops and increasingly powerful mobile dev­ices. Today Moore’s law is creating what in Silicon Valley is described as the “internet of things”: a networked world in which increasingly intelligent inanimate objects — from cars to clothing to buildings to cities — are connected.

By 2020, according to Swedish telecommunications giant Erics­son, there will be 50 billion connected devices in the world. These are the 50 billion reasons we should be terrified of computerised artificial intelligence.

In their bestselling 2014 book, economists Erik Brynjolfsson and Andrew McAfee have called this epoch The Second Machine Age. We are on the brink today of the age of thinking mach­ines, of a networked society in which everything and everyone will be connected on a ubiquitous global electronic grid.

“The exponential digital and recombinant powers of the second machine age have made it possible for humanity to create two of the most important one-time events in our history,” Brynjolfsson and McAfee note. “The emergence of real, useful artificial intelligence and the connection of most of the people on the planet via a common digital network.”

Brynjolfsson and McAfee argue that each of these changes in its own right has a profound historical significance. But when combined, they explain, “they are more important than anything since the Industrial Revolution, which forever transformed how physical work was done”.

The problem may not be quite as full of cinematic drama as Hawking or Musk fears. We are not on the brink of “singularity” — that moment when machines become more intelligent than humans and, as if in a digital remix of Mary Shelley’s Frankenstein, reinvent themselves as our master.

It might not yet be time to flee to another planet. Particularly since it’s not clear what the employment situation is on Mars or Jupiter for the accountants, legal experts, technical writers and other white-collar occupations that, according to Frey and Osborne, will be most vulnerable to digital destruction.

The transformation to the second machine age is dominated by the shift from an economy based on human expertise to one dominated by intelligent machines. The human meritocracy of the 20th-century information economy is being replaced by a machine-centric capitalism.

Marc Andreessen, co-founder of Netscape and a prominent Silicon Valley venture capitalist, boasts that “software is eating the world”. But, in truth, software is eating many of our jobs and failing to replace them. “The prevailing methods of computerised communication pretty much ensure that the role of people will go on shrinking,” notes influential American technology critic Nicholas Carr in his latest book, The Glass Cage.

Carr describes a digital age in which attorneys, business executives and doctors are being usurped by algorithms. He explains that legal firms are using software from companies such as Lex Machina that replaces the expertise of the senior litigator with algorithms able to predict the outcome of patent lawsuits.

“Society is shaping itself to fit the contours of the new computing infrastructure,” Carr warns. “The infrastructure orchestrates the instantaneous data exchanges that make fleets of self-driving cars and armies of killer robots pos­sible. It provides the raw materials for the predictive algorithms that inform the decisions of individuals and groups. It underpins the automation of classrooms, libraries, hospitals, shops, churches and homes.”

Brynjolfsson and McAfee echo some of Carr’s concerns. It’s “not implausible”, they say, that “Dr Watson”, the medical version of IBM’s Watson — the “cognitive system” that participated in the US television quiz show Jeopardy! — “might one day be the world’s best diagnostician”. What becomes of the human doctors who are replaced by Dr Watson? What becomes of diagnosticians replaced by an IBM cognitive system?

Oddly enough, it’s the most skilled workers who will be most vulnerable in the second machine age. This irony — known as Moravec’s paradox in homage to Austrian robotics expert Hans Moravec — is based on the disconcerting reality that what we once considered “high-level reasoning” requires little computational sophistication to replicate.

“The main lesson of 35 years of AI research is that the hard problems are easy and easy problems are hard,” Canadian cognitive scientist Steven Pinker explains. “As the new generation of intelligent devices appears, it will be the stock analysts and petrochemical engineers and parole board members who are in danger of being replaced by machines. The gardeners, receptionists and cooks are secure in their jobs for decades to come.”

But despite Moravec’s paradox not all unskilled jobs are safe. Automated, self-driving cars will replace cabbies and delivery drivers. Machines are already replacing workers in factories around the world. Foxconn, the gigantic Chinese electronics manufacturer, has said it will replace a million workers with robots.

Jeff Bezos, Amazon’s chief executive, is pioneering robots in his distribution centres and promised investors he would be “employing” 10,000 robots by the beginning of this year. “Amazon’s warehouse jobs are gradually being taken over by robots,” warns George Packer of The New Yorker, thereby completely “eliminating the human factor from shopping”.

Bezos is also experimenting with automated drones that would make tens of thousands of delivery drivers redundant. “I know this looks like science fiction,” he says, “but it’s not.”

What really looks like science fiction is the future of labour. “You’ll be paid in the future depending on how well you work with robots,” according to Kevin Kelly,Wired magazine’s “senior maverick”. But for every “senior maverick” able to work with computers there will be a legion of teachers, lawyers, accountants and diagnosticians whose skills will be increasingly redundant in the age of the intelligent machine.

The political ramifications are particularly troubling. Financial Times economist Martin Wolf warns that intelligent machines will hollow out traditional middle-class jobs, compound income inequality, make the wealthy indifferent to the fate of the rest of society and make a mockery of democratic citizenship.

“Average is over,” notes American economist Tyler Cowen about a new world in which the “key divide” is between 10 to 15 per cent of people who can “manage computers” and everyone else. Cowen describes this new elite as a “hyper-meritocracy” of people who can work effectively with artificially intelligent machines.

In today’s increasingly automated economy, the relative egalitarianism of our industrial age will be replaced by a social order more akin to feudalism. “We can expect job growth in personal services,” Cowen predicts. “This will mean maids, chauffeurs and gardeners for the high earners.” It will be a world of “billionaires and beggars”.

Cowen’s feudal vision is replicated in the broader networked economy. The network effect has created a winner-takes-all economic system in which a tiny proportion of Silicon Valley com­panies such as Google, Facebook and Amazon are dominant.

The real race today in Silicon Valley is to control this new robot economy. In 2012 Amazon paid $775 million for Kiva Systems, the maker of intelligent machines for servicing warehouses, whose robots it is also using in its own distribution centres. Facebook, too, is aggressively pursuing opportuni­ties. In 2014, for example, it acquired Oculus VR, a virtual reality company, and British-based pilotless drone company Ascenta.

Facebook’s Mark Zuckerberg has also invested in Vicarious, an artificial intelligence company that, according to its founders, will “learn how to cure diseases, create cheap renewable energy and perform jobs that employ most human beings”. What isn’t clear, however, is what exactly we humans will do all day when every job is performed by Vicarious.

It is Google, the dominant technology company of our networked age, that has been the most aggressive in controlling the robot economy. In the second half of 2013, Google acquired Boston Dynamics, a producer of militarised robots, as well as seven other robotics companies. At the beginning of 2014 it paid $500m for DeepMind, a British company with a strong focus on AI. Last year Google also acquired the leader in smart home technology, Nest Labs, for $3.2bn.

Then there is Google’s championing of self-driving cars as well as its $250m investment in Uber, which, some speculate, could be used as a global transport platform for automated vehicles. As a company with a $550 billion market cap that employs fewer than 50,000 people, Google’s core value is based on its algorithm rather than its labour force. It may not represent the planet’s biggest existential threat or spell the end of the human race, but Google exemplifies the way ordinary working people are losing the race against the machine.

“Don’t fear artificial intelligence,” says Ray Kurzweil, Google’s director of engineering and an evangelist of robot technology. He believes AI is making the world a better place by improving the diagnosis of disease, developing renewable clean energy, cleaning up the environment and providing high-quality education to people.

“We have the opportunity to make major strides in addressing the grand challenges of humanity,” Kurzweil argues. “AI will be the pivotal technology in achieving this progress.”

Kurzweil is wrong. Rather than saving the world, the automated economy is provoking a crisis of unemployment and inequality. In 1930 economist John Maynard Keynes wrote: “We are being afflicted with a new disease of what some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely technological unemployment.”

Today, technological unemployment is back — only this time there are no world wars to give people work. As Keynes’s biographer, Robert Skidelsky, has warned about the contemporary capitalist system: “Sooner or later we will run out of jobs.”

Kurzweil argues that we have a “moral imperative” to realise the promise of artificial intelligence. But in today’s increasingly automated networked economy the real moral imperative is to create a world of full employment. There can be no progress when we are being outrun, outgunned and outflanked by the machine. There can be no progress when it appears that we have finally run out of jobs.

Feb 26, 2015

Goodman Fielder investors to profit as Chinese give thumbs up

Hedge funds are set to make a 60 per cent return on a last-minute investment in beleaguered bread and spreads maker Goodman Fielder after taking advantage of uncertainty over a $1.3 billion offer from Singapore oils trader Wilmar International and Hong Kong investment company First Pacific.

Goodman Fielder shares jumped 3¢ or 4.7 per cent to 67¢ on Monday – their highest level since May last year – after Wilmar and First Pacific finally secured Chinese government approval for their 67.5¢ a share cash offer, which has been dragging on since April last year.
The Anti-Monopoly Bureau of China's Ministry of Commerce approved the deal on the eve of the Chinese New Year holiday period, leaving approval from New Zealand's Overseas Investment Office as the last remaining regulatory hurdle.

If OIO approval is forthcoming, and Goodman Fielder's minority shareholders approve the offer at a meeting on February 26, hedge funds who snapped up more than 160 million Goodman shares late last week stand to make a profit of 3.5¢ a share – an annualised return of around 60 per cent.

China Soft Landing Seen by Export-Dependent Australia - Bloomberg Business

China’s economy looks headed for a soft landing. At least that’s what BHP Billiton Ltd. and Australia’s central bank chief Glenn Stevens are signaling 3,500 miles away.
Being the most China-dependent developed economy Australia is highly attuned to the ebbs and flows in the world’s biggest trading nation. While China’s growth has slowed, the best estimate of Aussie exporters and policy makers is that housing demand from the migration of rural Chinese to cities will help avert an abrupt further slump in expansion.
BHP, the world’s biggest miner, forecasts a moderate recovery in Chinese demand for steel in 2015. The Reserve Bank of Australia chief says that growth in the second-largest economy is impressive. And one measure favored by some investors, iron-ore shipments from the remote northwest Port Hedland -- the largest exit point for such exports -- have stabilized near a record level.
“Australia’s data show that China’s economy is set to remain strong in 2015,” said James Laurenceson, professor of economics and deputy director of the Australia-China Relations Institute in Sydney. “I look at all the numbers -- resources, agriculture and services -- and see solid indicators across the board.”
One measure from China itself Wednesday offered evidence of a trough in what’s been a downturn in industrial expansion. The preliminary purchasing manager’s index for February from HSBC Holdings Plc and Markit Economics showed a rebound. The Aussie dollar -- which tumbled 15 percent in the past six months as China’s slowdown deepened -- gained after the release.

Property Market

“I don’t think the Australian dollar has much downside anymore,” Klaus Baader, chief Asia Pacific economist at Societe Generale SA, said in an interview in Sydney. “Fundamentally, it’s pretty much come into line with where it should be.”  The Aussie dollar has risen about 3 percent from an almost six-year low of 76.26 U.S. cents on Feb. 3.
“The real thing that is impacting us at the moment is the slowdown in residential construction” in China, John Edwards, a member of the Australian central bank’s board, said in a Feb. 17 interview. “There are some signs that that is beginning to turn around. It will have to turn around, otherwise China won’t be able to achieve its aims in respect of urbanization in the next decade or two.”

Continuing Urbanization

Chinese policy makers have taken steps to shore up the property market, lowering interest rates last year and cutting lenders’ required reserve ratios this month. An embrace of greater liquidity helped spur a third straight gain in China’s broadest measure of new credit in January.
Officials also are preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter say.
Chinese residential construction is a boon for Australian resource producers. Rio Tinto Group, the world’s second-largest mining company, estimates China’s 1.3 billion people were 54 percent urbanized at the end of last year, and predicts that proportion will reach 70 percent by 2030, supporting steel output and demand for iron ore.
Crude steel production in China increased to about 830 million metric tons in 2014 and is on course to reach 1 billion tons a year by 2030, Rio said in its earnings statement Feb. 12.

Positive Recalibration

While China’s economic growth slowed in 2014 to 7.4 percent from 7.7 percent a year earlier, Australian policy makers say efforts by the Chinese to boost consumption at the expense of construction and to stamp out corruption bode well for the long term.
“One would hope that they will come out of this recalibration of their economy being stronger and in a better place to be an engine of growth,” John Fraser, who recently took office as Australia’s secretary to the Treasury and is a former chief executive officer of UBS Global Asset Management, told a parliamentary panel Feb. 25.
The Treasury in December forecast growth in China of 6.75 percent in 2015 and 6.5 percent in 2016.
Australia’s links to China tightened in the past decade as exports to what’s now its largest trading partner almost quadrupled in five years. It exports 5.8 percent of its gross domestic product to China, more than the combined 4.7 percent France sends to Germany and Italy, according to data from the World Bank and the International Monetary Fund compiled by Bloomberg.

Largest Trader

For the RBA’s Stevens, growth in China of about 7 percent, down from 10 percent years ago, is still good.
“They are by now, I think, the largest trading economy in the world,” he said in testimony to a parliamentary committee Feb. 13. “An economy of that size growing at 7 percent is still quite an impressive performance if they can do that.”
China’s leadership is forecast to adopt a growth target of about 7 percent at a gathering of the nation’s leadership in Beijing next month, down from about 7.5 percent last year.
“It is important not to get too bearish on commodity exporters,” said Stephen Jen, co-founder of SLJ Macro Partners LLP in London. While he said it’s possible that China’s expansion slows to below 6 percent in the next five years, it will continue to spur growth Down Under. “In absolute terms, China’s incremental growth even at a slower pace could be material for countries like Australia.”

China dumps Apple, Cisco, Intel and more technology brands

China has dropped some of the world’s leading technology brands from its approved state purchase lists, while approving thousands more locally made products, in what some say is a response to revelations of widespread Western cybersurveillance.
Others put the shift down to a protectionist impulse to shield China’s domestic technology industry from competition.
Chief casualty is US network equipment maker Cisco Systems, which in 2012 counted 60 products on the Central Government Procurement Center’s (CGPC) list, but by late 2014 had none, a Reuters analysis of official data shows.
Smartphone and PC maker Apple has also been dropped over the period, along with Intel security software firm McAfee and network and server software firm Citrix Systems.
The number of products on the list, which covers regular spending by central ministries, jumped by more than 2,000 in two years to just under 5,000, but the increase is almost entirely due to local makers.
The number of approved foreign tech brands fell by a third, while less than half of those with security-related products survived the cull.
An official at the procurement agency said there were many reasons why local makers might be preferred, including sheer weight of numbers and the fact that domestic security technology firms offered more product guarantees than overseas rivals.
China’s change of tack coincided with leaks by former US National Security Agency (NSA) contractor Edward Snowden in mid-2013 that exposed several global surveillance programmes, many of them run by the NSA with the cooperation of telecom companies and European governments.
“The Snowden incident, it’s become a real concern, especially for top leaders,” said Tu Xinquan, Associate Director of the China Institute of WTO Studies at the University of International Business and Economics in Beijing. “In some sense the American government has some responsibility for that; (China’s) concerns have some legitimacy.”
Cybersecurity has been a significant irritant in US-China ties, with both sides accusing the other of abuses.
US tech groups wrote last month to the Chinese administration complaining about some of its new cybersecurity regulations, some of which force technology vendors to Chinese banks to hand over secret source code and adopt Chinese encryption algorithms.
The CGPC list, which details products by brand and type, is approved by China’s Ministry of Finance, the CGPC official said. The list does not detail what quantity of a product has been purchased, and does not bind local government or state-owned enterprises, nor the military, which runs its own system of procurement approval.
The Ministry of Finance declined immediate comment.
“We have previously acknowledged that geopolitical concerns have impacted our business in certain emerging markets,” said a Cisco spokesman.
An Intel spokesman said the company had frequent conversations at various levels of the US and Chinese governments, but did not provide further details.
Apple declined to comment, and Citrix was not immediately available to comment.


Industry insiders also see in the changing profile of the CGPC list a wider strategic goal to help Chinese tech firms get a bigger slice of China’s information and communications technology market, which is tipped to grow 11.4per cent t to $465.6 billion in 2015, according to tech research firm IDC.
“There’s no doubt that the SOE segment of the market has been favouring the local indigenous content,” said an executive at a Western technology firm who declined to be identified.
The executive said the post-Snowden security concerns were a pretext. The real objective was to nurture China’s domestic tech industry and subsequently support its expansion overseas.
China also wants to move to a more consumption-based economy, which would be helped by Chinese authorities and companies buying local technology, the executive said.
Policy measures supporting the broader strategy include making foreign companies form domestic partnerships, participate in technology transfers and hand over intellectual property in the name of information security.
Wang Zhihai, president and CEO of Beijing Wondersoft, which provides information security products to government, state banks and private companies, said the market in China was fair, especially compared with the United States, where China’s Huawei Technologies, the world’s largest networking and telecoms equipment maker, was unable to do business due to US. security concerns.
Local companies were also bound by the same cybersecurity laws that US. companies were objecting to, he added.
The danger for China, say experts, is that it could leave itself dependent on domestic technology, which remains inferior to foreign market leaders and more vulnerable to cyber attack.
Some of those benefiting from policies encouraging domestic procurement accept that Chinese companies trail foreign competitors in the security sphere.
“In China, information security compared to international levels is still very far behind; the entire understanding of it is behind,” said Wondersoft’s Wang.
But Wang, like China, is taking the long view.
“In 10 or more years, that’s when we should be there.”

The glut of everything | Business Spectator

Here is yesterday’s news:
  • share prices surged to new seven-year highs;
  • housing is booming;
  • wages growth is the lowest on record;
  • interest rates are the lowest ever.
And when I say “ever”, I mean just that, as this amazing chart from a speech last week by the Bank of England’s chief economist, Andy Haldane, demonstrates. It shows global interest rates back to 3000BC, when construction workers started building Stonehenge, Troy was founded and Djet became the fourth Pharaoh of Egypt, replacing Djer, who passed away.
Interest rates have never, ever been this low.
So to sum up: savers and workers are being crushed; owners of assets are big winners.
The reason savers and workers are copping it is that there is an oversupply of everything: labour, money and stuff -- savings, liquidity, energy, commodities, goods, services and people.
There is a glut of everything, and as a result prices can’t rise and unemployment is stubbornly high, depressing wages (the ABS “wage price” index rose only 2.5 per cent last year, the weakest growth since measurements began in 1998).
For central bankers, low inflation and high unemployment depressing wages growth can mean only one thing: insufficient demand.
That’s because aggregate demand is the only thing central banks can influence through the price of money. When the only tool you have is a hammer, everything is a nail.
And so to encourage borrowing and consumption, savers have to cop it. Keynes called it “euthanasia of the rentier” (a person living on income from property or savings -- another word for saver) and he looked forward to it.
Last night Germany sold some five-year bonds at minus 0.08 per cent, and more than a third of European governments are now selling bonds at negative interest rates. Too bad for savers in Europe -- they have to pay to have their money looked after by the government. No interest for them at all.
In Australia bond yields are at record lows and savers (by which I mean retirees) are being forced to buy bank equities to get a smidgeon of income. In doing so they are exposing themselves, or their children, to big capital losses if/when there is a recession.
Workers can’t get pay rises because unemployment is high, because wages in Australia are already uncompetitive with the rest of the world, and because inflation is low anyway.
But while the incomes of those who are working and those who are retired are suppressed, their assets are rapidly rising in value.
Moreover, the authorities are urgently suggesting that they borrow more money and push up the prices of property and shares even more.
Maybe that way, it is hoped, consumer and business demand for goods and services will rise, driving up prices and driving down unemployment.
But so far, so bad. Earlier this month we learned that retail sales finished 2014 poorly: consumers lack confidence and are not spending. That’s not surprising given low wages growth and uncertainty about government welfare spending.
More importantly, businesses are not investing much. Yesterday’s construction data showed total work done in the December quarter was $50.3 billion, down from $50.4bn the previous quarter. Residential construction (homes) went up a bit, but not enough to offset the fall in engineering construction (mines). That’s been the story for a couple of years.
Yesterday, Federal Reserve chair Janet Yellen started to prepare markets for the Fed funds rate in the US to rise this year after six years (and counting) at zero or thereabouts. But then she indicated that the Fed is now officially “data driven” -- that is, anything could happen, actually.
In other words, savers now depend for their livelihoods on whether central banks can get the world’s consumers to start spending and to soak up the glut of everything.
It will happen eventually of course -- everything always does happen eventually.
But for a while, at least, we live in interesting times.

Now Google Trends Can Predict David Leinweber

Yesterday three economists, (Tobias Preis of Warwick Business School in the U.K., Helen Susannah  Moat of University College London, and H. Eugene Stanley of Boston University) published an eye-opening paper that said Google Trends data was useful in predicting daily price moves in the Dow Jones industrial average, which consists of 30 stocks. Their research result:
An uptick in Google searches on finance terms reliably predicted a fall in stock prices.
“Debt” was the most reliable term for predicting market ups and downs, the researchers found. By going long when “debt” searches dropped and shorting the market when “debt” searches rose, the researchers were able to increase their hypothetical portfolio by 326 percent. (In comparison, a constant buy-and-hold strategy yielded just a 16 percent return.)
This was a 180-degree turnaround from earlier research, by Prof. Preiss, published back in 2010.
Back in 2010, he used Google Trends data and found the opposite conclusion:
“The Google data could not predict the weekly fluctuations in stock prices. However, the team found a strong correlation between Internet searches for a company’s name and its trade volume, the total number of times the stock changed hands over a given week. So, for example, if lots of people were searching for computer manufacturer IBM IBM -1.23% one week, there would be a lot of trading of IBM stock the following week. But the Google data couldn’t predict its price, which is determined by the ratio of shares that are bought and sold.”
What happened? Are people revealing more of their investment intentions in their searches?
The clue may be in looking at changes in the nature of what’s reported on Google Trends. In a nutshell, the data is getting bigger, by getting finer, and faster. We can see this by looking at two other papers, co-authored by Google’s chief economist, Hal Varian, author of the “if you only read one book on internet economics, read this one” Information Rules.
In the opening paragraph of an April 2009 paper, “Predicting the Present with Google Trends,” Hyunyoung Choi and Hal Varian describe Google Trends data:
“Economists, investors, and journalists avidly follow monthly government data releases on economic conditions. However, these reports are only available with a lag: the data for a given month is generally released about halfway through through the next month, and are typically revised several months later. Google Trends provides daily and weekly reports on the volume of queries related to various industries.
We hypothesize that this query data may be correlated with the current level of economic activity in given industries and thus may be helpful in predicting the subsequent data releases.”
All of the examples in the 2009 paper have either months or years on the time axis. They compared sales forecasts from standard seasonally adjusted and “momentum” models with similar models that also used the monthly Google Trends data. Here’s an example where they looked at sales of Ford cars. There were modest improvements in accuracy, a few percent, and it was about sales, not stock prices.

Lethal forces pushing Australia to the brink | Robert Gottliebsen

NEVER before in our history have we faced the current dangerous combination of events. I am not forecasting that they will lead to a recession but we are in uncharted territory.
In isolation each of the events I will describe is manageable and in some cases result from well-meaning decisions. But in combination they could be lethal. Let me bring together the events so you can be the judge.
We will start with last night’s stark warning from ANZ Banking Group that investment in resource projects is set to fall from $76 billion in 2013 and $61 billion last year to just $10 billion in 2017 — the year after next. I will not estimate the job losses but they will be huge. In the full knowledge this was going to happen Treasurer Joe Hockey decided 2016-17 was the right time to close the motor industry. The motor job losses will not be as great as in mining but they will be significant and bring Victoria and South Australia into the same ambit as the mining states. (South Australia is also being hit by part of the mining cut back.)
Faced with this massive decline in the mining and motor industries, Prime Minister Tony Abbott correctly decided that investment in infrastructure was the answer. NSW got its act together and will benefit from that decision. Queensland is less certain but Victoria, our second largest state, is in total chaos, following the change of government. The planned cancellation of the massive East West Link project means that Victoria will be up for compensation of around $1 billion because huge outlays were committed to the purpose-built giant tunnelling machinery that was ordered. In addition, financiers raised the money using unambiguous break penalties. They will need to be fully compensated should the Victorian government decide to renege on contracts.
In the case of the financing, the Queenslanders will be the big beneficiaries and will enjoy having Victorians help pay for their infrastructure. If the tunnel plant compensation is not paid in full the global tunnelling association plans to make it tough for Victoria’s hopes to extend its rail network — which is also chaotic because the political parties have different views as to what rail plan is best. The big companies will probably get their East West Link billion-dollar compensation but smaller contractors who hired staff and leased plants to do the work will be decimated.
In simple terms, the Victorian mess will ensure that infrastructure will not fill the mining/motor gap.
But what might fill the gap is the unprecedented investment by the Chinese in apartment development, particularly in Victoria. According to Charter Keck Cramer, 42,220 apartments will be built in Melbourne between 2015 and 2019 — 45 per cent of the national total. It has been harder to get approvals in NSW. Brisbane will also do well in apartments.
This Chinese-led apartment boom is now vital to Australia, given the timing. Later we will have to deal with the consequences of oversupply in some areas.
But the voters don’t like the Chinese/Asian “invasion” so Tony Abbott, desperate to salvage his position in the opinion polls, is planning to undertake a whole series of clampdowns on foreign buying of apartments and houses, including a 1 per cent levy to fund foreign real estate buying scrutiny.
That’s likely to really hit the one thing standing between Australia and a recession — Chinese investment in our apartments. Victoria will be decimated if the Chinese retreat, given all the other things that are happening. And if dwelling prices fall as unemployment rises, bad bank debts will increase.
And just to add to the possibility that our second largest state could be smashed, the new Victorian government has looked after its mates and returned control of building sites to the unions. That puts up the costs. The Commonwealth has declared it will not fund any projects that return to the bad old days.
The Chinese will discover the higher costs when they go to build the apartments.
To have state and federal mismanagement at a time of an unprecedented fall in the mining boom is without precedent. Not surprisingly business is not investing, salary rises are low and consumer confidence is depressed. In other countries when there is a catastrophe everyone pulls together. In Australia we are pulling apart.

Australian dollar’s fall curtails the country’s easy ride | David Uren

THE fall in the exchange rate has brought relief to countless thousands of businesses either exporting or competing against imports and has also made the task of the Reserve Bank a little easier. With the prices for Australia’s key exports falling sharply over the past year, Reserve Bank governor Glenn Stevens has been complaining the exchange rate was overvalued and needed to fall.
As well as lifting the returns to exporters, a lower exchange rate focuses demand locally. Given a choice of the locally produced or the imported good or service, a lower exchange rate makes the home-produced good more competitive. With more demand being channelled to domestic businesses, the Reserve Bank does not have to try quite so hard to stimulate consumption and ­investment by cutting rates.
However, it is hard to get too enthusiastic about world markets coming to the conclusion that Australia’s economy as a whole is worth less than they had thought. The Australian dollar was carried above parity with the US dollar by a belief that ­investing in this country brought opportunities for superior growth, thanks in large part to the burgeoning markets for our ­exports to China and the transformation of Australia into the world’s biggest exporter of ­mineral resources and energy.
Markets have scaled back their estimates of how much largesse that will bring as China’s economy slows. The forecasts of Chinese demand used to justify vast new resource projects have proven optimistic. Australian assets are no longer so valued by the world’s investors. Australian politicians of both sides have endlessly repeated how fortunate we are to be located in the fastest growing part of the world. The fall in the currency says this will not bring Australia the easy ride we might have expected.
A lower exchange rate brings a reduction in our purchasing power. It becomes harder for businesses to buy the imported equipment it needs, just as it will be harder for consumers to buy the cars, clothes, iPhones and international travel they have enjoyed.
A large share of the items in the consumer basket are imports with no domestically produced equivalent so the fall in the currency brings lower living ­standards. It also becomes harder for Australian business to internationalise. It is more expensive to buy assets offshore.
New Treasury secretary John Fraser says the stimulus from a lower dollar should provide government with the latitude to invest in structural reforms and budget repair. If it is seen as a panacea for all our ills, we will come to regret it, he warns. He cites the examples of both Britain since the financial crisis and Australia through the latter half of the 1980s when governments took advantage of the boost to competitiveness from a weaker currency to take difficult decisions to eliminate budget deficits while implementing reform. Sterling fell by around 30 per cent against the US dollar following the crisis as markets concluded the weight of Britain’s banking industry would leave its economy struggling for years. Huge spending cuts, which resulted in government departments losing up to a third of their staff alongside tough measures to force people off welfare, were slammed by the International Monetary Fund. Its chief economist, Olivier Blanchard, said the cuts would choke the UK’s economic recovery. He was forced to apologise as the UK’s growth accelerated to be one of the best in the advanced world. The IMF now estimates Britain will get its deficit below 2 per cent of GDP this year, having peaked at 10 per cent during the crisis.
In the 1980s, the dollar fell 20 per cent following treasurer Paul Keating’s “banana republic” warnings. Keating was heavily criticised by economists and by prime minister Bob Hawke for his remarks, but the government was able to use the latitude of a lower exchange rate to slash spending from 27 to 23 per cent of GDP, bringing the budget back to surplus. Growth weakened in 1987 but then recovered strongly.
The point Fraser makes is that exchange rates are fickle. The Australian dollar has swung between US48c and $US1.10 since it was floated three decades ago. At present, world currency markets are being swayed by the extraordinary easing policies of European and Japanese central banks and the expected lifting of rates in the US. Talk of currency wars may be overdone, but you cannot bet on currency markets.
Good economic policy, by contrast, sets up the economy for sustained prosperity. The 18 per cent fall in the Australian dollar against the US dollar since the middle of last year creates an opportunity. It is up to government and the parliament to seize it.

Aust stocks set for soft start | The Australian

The Australian sharemarket looks set to open lower following falls on Wall Street which dipped from record highs following mixed earnings reports.
At 6.45am (AEDT), the March share price index futures contract was down 16 points at 5,902.
In local economic news on Thursday, the Australian Bureau of Statistics is due to release private new capital expenditure and expected expenditure data for the December quarter, along with average weekly time earnings for the six months to November.
In equities news, Sydney Airport is slated to post full year results.
Qantas, Nine Entertainment, Billabong International, Ramsay Health Care, Transfield Services, Perpetual and Blackmores are expected to release half-year results.
Meanwhile, Goodman Fielder has an extraordinary meeting on its takeover proposal.
The local market edged to yet another seven-year high on Wednesday despite major stocks falling as they traded ex-dividend.
The benchmark S&P/ASX200 index was up 17.9 points, or 0.3 per cent, at 5,944.9 points.
The broader All Ordinaries index was up 18.6 points, or 0.32 per cent, at 5,908.6.

Stock-market crash of 2016: The countdown begins - MarketWatch

It’s time to start the countdown to the crash of 2016. No, this is not a prediction of a minor correction. Plan on a 50% crash.
Most investors don’t want to hear the countdown, will tune out. Basic psychology. They’ll keep charging ahead with a bullish battle cry, about how the Nasdaq will keep climbing relentlessly to a new record above 5,048 ... smiling as they remember reading that a whopping 73 companies are now in the Wall Street Journal’s Billion Dollar Start-up Club, with Uber ($41 billion), SpaceX ($12 billion) and Snapchat ($10 billion). Hearts race even faster reading in Bloomberg BusinessWeek that “China’s IPO Boom Mints Billionaires” and Jack Ma’s Alibaba fortune is now valued at $35.1 billion.
Yes, technology IPOs are in the lead, and with all that good news, it’s easy to understand why investors tune out, don’t want to hear the warnings, no countdown to the 2016 crash.
But the crash of 2016 really is coming. Dead ahead.
Maybe not till we get a bit closer to the presidential election cycle of 2016. But a crash is a sure bet, it’s guaranteed certain: Complete with echoes of the 2008 crash, which impacted on the GOP election results, triggering a $10 trillion loss of market cap ... like the 1999 dot-com collapse, it’s post-millennium loss of $8 trillion market cap, plus a 30-month recession ... moreover a lot like the 1929 crash and the long depression that followed.
Plus cycles theorists warn that we dodged a crash in 2012-2013, thanks to the Fed’s stimulus and cheap-money polities. Or rather delayed it, which adds more power to the next one.
Why not sooner, you ask? Why not in 2015? Yes, Mark Hulbert’s already warned that the“stock market risk is higher today than it was in the dot-com era.” Yes, a dip is possible. MarketWatch’s Sue Chang writes of a 10%-20% stock-market correction by July.
But we also know markets are typically up the third year of a presidency. So if no crash is in the cards this year, then why bother with warnings and a countdown? Why bother building up the 2016 elections with lots of dark early warning signs, and doom-and-gloom warnings for the next 18 months?
Why? Simple, behavioral economists have long been telling us that investors will either choose to stay in denial till it’s too late, never having learned the lessons of history when the market collapsed in 2008, 2000 or 1929, when they collectively lost trillions. Or we know some investors really do want to heed the warnings, so they can plan ahead, avoid big losses, and take advantage of opportunities later, at the bottom.
Deja vu 2008: Watch another presidential hopeful collapse!
Let’s compare 2016 with earlier crashes: 2008 to 2000 to 1929, knowing all bulls drop into bears eventually. Basic cycles theory. And this next one will trigger losses bigger than 2000 and 2008. So bet against the house at your peril.
Jeremy Grantham’s already on record predicting that “around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.”