Saudi Arabia: Alphabet and Aramco in talks to make a Saudi Silicon Valley

Alphabet Inc., the parent company of Google, is in talks with Saudi state oil company Saudi Aramco in order to reach an agreement to build a technology hub in the Arab country, as reported by the Wall Street Journal. The details of the agreement are unknown at the moment.

Riyadh has been in talks also with Google’s rivals Apple and Amazon, as the Crown Prince Mohammed bin Salman is looking for strategic partners to give his country an high-tech look.

The Saudi Arabia’s kingdom, with Crown Prince Mohammed bin Salman on the front line, is trying to put in action an ambitious plan to diversify its economy, which relies almost totally on oil exports. All OPEC countries, as well as any other oil economies, have been suffering since oil prices crashed in 2014, forcing the oil cartel to reach a cut production agreement in 2016 in an effort to sustain the prices.

Mohammed bin Salman had put in action an ambitious plan, Vision 2030, which should help his country to became less dependent on oil exports. At the same time the kingdom is implementing important reforms in order to shift towards a moderate Islam (just to mention a few: on September 2017 Saudi Arabia announced on that it would allow women to drive; in 2015 women were allowed to vote for the first time).

 

 

Nintendo stock is booming after Labo announcement: prices may overtake ATH in 2018

In 2015 Nintendo was on the brink of collapse, as the Wii U failed to replicate the great success of its predecessor (Wii), and with about 11 million units sold world wide in its entire lifespan Wii U is officially the worst selling home console of Nintendo. The value of the company declined fast, and from 2007 peak Nintendo’s stock (OTCMKTS: NTDOY) lost in 6 years over 80 percent of value, with the investors losing faith in the company competitiveness.

What Nintendo did back then was a true masterpiece that should be mentioned in any management book. Nintendo in 2015 quickly rebuilt a new strategy to bring itself back into profitability, without sacrificing the pillars that distinguish the company of Kyoto from other competitors: quality, innovation and creativity. On March 2015 Nintendo announced a partnership with DeNa to jointly develop titles for the mobile sector, and on April 2016 announced NX, the new console that will later be known as Nintendo Switch.

The skepticism around the company vanished when the Switch was unveiled to the public in October 2016, convincing the critics, the analysts and the players around the world. The 2017 has been a fantastic year for Nintendo, with the Switch becoming the fastest selling console in North America of all times.

Nintendo stock weekly chart updated to 19 January 2018. Credit: Technician/TBGlobalist

Skies are now crystal blue over Kyoto, and Nintendo’s stock rebounded from 2015 low and prices soared over 300 percent in two years, while the company’s market capitalization overtaked Sony on June 2017. The stock uptrend, moreover, may continue in the next months and in following years, as Nintendo keeps delighting the public with new killer applications.

Nintendo Labo will help the stock to sustain the uptrend in 2018

On Wednesday 17 January, during Nintendo direct 2018, the Japanese company announced Labo, a new line of interactive toys represented by 25 sheets of cardboard that players can turn into playable objects. The concept of Labo looks brilliant and in the video game industry is a very rare thing, which shows the hidden capabilities of Nintendo Switch. Labo is a tangible proof that in 2017 Nintendo was not just sitting and basking in the great success of Switch, but the company was also preparing to maintain its momentum for 2018.

Pre-order your Nintendo LABO – Variety Kit

Pre-order your Nintendo LABO – Robot Kit

Nintendo’s stock soared by 4 percent for two consecutive days, as investors think the gadget will help to boost the Switch’s sales for 2018.

The technical analysis confirms the good moment for the stock and now there are few obstacles for the prices to reach the 2007 peak.

Nintendo daily chart
Nintendo daily chart updated to 19 January 2018. Credit:Technician/TBGlobalist

The breakaway gap opened in 2016 is a strong upside sign, and usually this always marks the start of a new trend, which for now has been confirmed by the events, as the stock recently close a pullback on 2008 low. Nintendo Labo announcement helped the stock to breakup the 2017 high, and now prices are free to reach the target at $60, with few obstacles separating the stock for its ATH.

At the moment, given the great success of Switch phenomena, we don’t see anything that should prevent Nintendo’s sales to perform well in 2018 and increase the company’s revenues for the fiscal year. The stock uptrend will continue in 2018 and is highly possible that the prices will reach and overtake the all time high during the course of the year. 

 

 

 

Lebanon hires McKinsey to restructure its economy

Beirut

At the end of this week, the Lebanon government will sign a six months agreement with McKinsey & Co. to restructure its week economy, announced the Economy and Trade Minister Raed Khoury. The consulting firm will start to work with various ministries to implement a long-term strategy for the Lebanon, which has the highest debt in the Arab world and the world’s third highest in terms of debt-to-GDP ratio.

The government implemented over the course of 2017 a series of structural reforms to boost revenue and stop the debt rising, but they had little effects on the fiscal balance and weren’t enough to lift the previous Moody’s downgrade.

Over 50 percent of Lebanese are living abroad, especially in other Gulf and African countries, and the weak economy survives through the remittances that have kept flowing in from outside the country. This helped Lebanon to accumulate big foreign reserves and to avoid a fiscal crisis, despite the political turmoils that left the country without a President or Prime Minister many times.

The Lebanon’s Economic and Trade minister said this model is no longer sustainable, and that the debt-to-GDP ratio could rise to 170 percent in the next years if no actions are taken. The country is changing its demography quickly, especially due to the Syrian civil war, which produced at least 1,5 million refugees who have fled to Lebanon to escape from war atrocities. Khoury thinks Singapore is the model to follow for the Lebanon, as the two countries share a similar demographic structure.

Lebanon’s economy has many grey areas,  as the money controlled by the Hezbollah group, and will be difficult for McKansey’s consultants to analyze them.

Many structural reforms are increasing economic inequality

Inequality

Generally there is a high consensus that structural reforms boost growth and, after the economic crisis that hit many advanced economies, many governments have been implementing these reforms to accelerate the growth.

In Europe the need for structural reforms is particularly stressed by Germany, which reminds often they are necessary to achieve a strong Europe. European creditors imposed a reform agenda to all peripheral countries – Greece,Italy, Portugal and Spain – and the respect of the terms are mandatory to extend bailouts by the European Union and European Central Bank (ECB), and most of all to avoid higher yields, which equates to higher borrowing costs for the country in crisis.

The correlation between structural reforms and GDP growth is well documented, however few analyzed the effects on wealth distribution. A recent paper published by the International Monetary Fund (IMF) shows evidence of a growth-equity tradeoff for some important reforms. The authors (Jonathan D. Ostry, Andrew Berg, and Siddharth Kothari) collected data across countries to find a relation among growth, inequality, and reforms, using panel regressions and an event-study approach.

IMF’s researchers assembled a comprehensive dataset of reform indices, including financial and real reforms, updating a dataset made by Ostry in 2009, while for inequality they used data from the Standardized World Income Inequality Database developed by Solt.

They find the the growth-equity tradeoffs varies across reforms and the effects are not homogeneous across the countries, however in most cases the structural reforms increase the inequality.

Financial reforms and capital account liberalization lead to both growth and inequality increase, but the effects on inequality are greater. In particular, the growth benefit from liberalizing capital account restrictions seems to very limited, but there is a clear increase in inequality.

Network reforms don’t increase growth and in countries with a high level of corruption they lead extractive monopolies. In general, the effects of network reforms are negative for wealth distribution and they increase inequality.

Institutional reforms, aimed at strengthening the impartiality of and
adherence to the legal system, don’t have any tradeoff effects and they are good for both growth and distribution.

The overall result of the paper is in favour of structural reforms, as the net value of their implementation is positive, but the results need to be interpreted with caution. The authors stressed that “specific reform packages, in order to gain support and deliver enduring broad-based benefits, need to be designed with distributional consequences in mind”. The paper wants to serve as a warning for the policy makers to design the reforms with distributional effects in mind, especially in those countries where inequality is already high.

No, China is not going to shutdown Bitcoin mining activities

A report published on 4 January on finance.caixin said The People’s Bank of China is planning to shutdown Bitcoin mining activities. The rumor was leaked out to the web by Guo Hong, a celebrity in the cryptocurrency world, who stated with a Wechat screenshot that all mines will close by January 5th. Lately, Guo Hong replied that the screenshot was photo shopped and denied all those claims.

Afterwards, other media reported that The People’s Bank of China held a meeting to demand Bitcoin miners to close all their activities within a limited time period, however officials of the Bank denied the meeting, and told Caixin reporters they just want to phase out preferential policies.

Officials wanted to clarify their stance toward Bitcoin is neutral, and they don’t want to encourage nor hamper mining activities. Bitcoin mining is very prosperous in China and it accounts for nearly 70 percent of the global hash power in bitcoin. The power consumption of mining is very high and it equals on 1 year the power supply to 50 million households, consuming 1.8 tons of carbon dioxide. Pollution in China has become the leading cause of death, and the government is fighting against its environmental issues cementing the global dominance of renewable sector. China has no intention to prohibit mining of cryptocurrency, but in the future is high probable the government will regulate the electricity consumption behind this activity. 

 

EUR/USD is testing a critical resistance: inverse head and shoulders on daily chart

The Euro-Dollar pair (EUR/USD) is testing a critical level, as prices have being rejected by a resistance placed at 1,2085. This resistance is also the neckline of an Inverse head and shoulders, that we’ve drawn on the daily chart above. The chart pattern usually suggests a breakup followed by an uptrend continuation, however the breakup may be preceded by a pullback on November high, around 1,197.

The breakup would launch the EUR/USD pair toward 1,22 and then 1,25. The Euro is strengthening against the US dollar (and sterling) since Trump election (and Brexit forum), when the single currency was around 1,040 and some investors speculated on EUR/USD parity. A strong euro may create a dilemma for the European Central Bank, which is expect to wind down the quantitative easing programme this year if the euro zone continues to grow strongly.

Investors will focus their attention on next Italian general election, which will be held on 4 March. Italians will go to the polls to vote the next Prime Minister, and the result may introduce new uncertainty in Europe.

 

 

Iran protests: corruption and economic issues are devouring the country

The wave of protests in Iran began on December 28, during a demonstration in Mashhad, Iran’s second-largest city, against the President Hassan Rouhani. The protests quickly escalated across the country in all major cities, including Tehran, Kermanshah, Isfahan, Hamedan, Rasht, Qom, Sari, with Iranian people calling for the religious establishment to step down. In Mashhad people called for the “death of the dictator” (Ali Khamenei), which is a serious matter for an Islamic country where the supreme leader holds complete authority.

People have taken to the streets for six consecutive days and Iranian security forces struggle to contain the largest protest since 2009 presidential election, when Iranians protested against Mahmoud Ahmadinejad’s reelection. The death toll have risen to 21 people nationwide on Tuesday, as reported  by state television, while clashes with police have intensified. All major news are being reported by state-controlled media and is difficult to confirm those reports independently.

On Saturday the government temporarily blocked many social networks, including Telegram and Instagram, which had been used by people to organize some of the anti-government protests. In the same day President Hassan Rouhan said “Iranians had the right to criticize but must not cause unrest”.

Why Iranians are protesting

The main factors fuelling the protests seem to be economic. Unemployment in Iran is at 12.4% and many university graduates struggle to find a job, while those who find one get paid sporadically. Poverty has increased since 2014 due to a decline social assistance in real terms, and between 44.5 percent and 55 percent of Iran’s urban population is living below the poverty line, showed the report “Measurement and Economic Analysis of Urban Poverty”.

Furthermore, inflation keeps rising and in November rose on 9.6 percent year-on-year, recording the highest inflation rate since July 2017, while most citizens must take on several jobs in order to survive.

Iran is the second largest economy of MENA region after Saudi Arabia, and in 2016 the Iranian economy bounced back at an estimated 6.4 percent, benefiting from the removal of oil sanctions and a recovery in exports. However, most people are not benefiting from the sanctions removal as the government is implementing a series of structural reforms to fight its debt problems.

Rouhani’s opponents often accused his administration of having ignored the poorest, and during the election campaign they promised to create millions of jobs and triple monthly cash payments to low-income families.

The corruption is killing the country

In Iran there’s a powerful system of political patronage and nepotism that pervades all sectors – including the judicial system, the police, the public sectors – and is killing the country. Rich people are often spared prosecution or fare well in trials, while public funds often find their way into few individual’s hands.

In the last six years there were four major financial corruption cases for approximately $17 billion: the 2011 Iranian embezzlement scandal; the Babak Zanjani case; the National Copper Company case.

 

Citigroup’s latest scandal: the firm sold wrong ratings for almost 5 years

Citigroup Centre

On December 28 The Financial Industry Regulatory Authority (FINRA) announced a $5.5 million fine against Citigroup and “required the firm to pay at least $6 million in compensation to retail customers for displaying inaccurate research ratings for numerous equity securities during a nearly five-year period, and for related supervisory violations”.

“Because of errors in the electronic feed of ratings data that the firm provided to its clearing firm, the firm either displayed the wrong rating for some covered securities (e.g., “buy” instead of “sell”)”, continues the report.

The error affected more than 1,800 securities, about 38 percent of those covered by the firm, from February 2011 through December 2015, but the FINRA’s report don’t say how much Citigroup’s customers have lost due to bad rating.

This electronic error is just the last of a series of scandals that hit the bank sector and Citigroup. In the early 2000s, Jack Grubman, a Salomon Smith Barney’s analyst, was at the center of a conflict of interest controversy.  In 2002 Citi was accused of helping Enron conceal its financial condition by disguising debt as trading transactions, and in 2004 was also implicated in WorldCom scandal. These are just few of scandal cases involving the credit institute (here a full list).

 

China will extend tax rebate for new-energy vehicles

China will extend a tax rebate on purchases of so-called new-energy vehicles (NEV) until the end of 2020, said in a statement  on Wednesday the finance ministry. The tax rebate was set to expire at the end of this year, but the government decides to extend the tax refund to incentive automakers to produce more electric vehicles.

“The extension would help increase support for innovation and development in new energy vehicles”, said the Ministry of Finance Xiao Jie. Beijing’s automakers are investing a lot in plug-in electric vehicle and the trend seems unstoppable:  in 2017, the PEV market share of all new car sales crossed 3% for the first time, while the 2017 PEV market share is above 2%, firmly ahead of last year’s average (1.5%), CleanTechnica reported.

China has become the world’s largest automotive market, but local firms still can’t compete worldwide with big brands as General Motors, BMW, Mercedes or Audi, and Beijing’s government  wants to catch up global automaker rivals.

 

Bitcoin’s Friday bloodbath proves cryptocurrency is a risky business

On December 22 Bitcoin, as many other cryptocurrencies, had the most significant drop since 2015: the prices plunged below $11.000 and then they stabilized around $14.000. This kind of correction was inevitable for many analysts, after Bitcoin’s price doubled two times over two months and hit a record high of $19,857 (one year ago Bitcoin’s value was around $1.000).

Moreover, other altcoins had even better performance compared to Bitcoin:  Ethereum is up over 7.000 percent and Litecoin is up 5.400 percent. Those huge performances have attracted mainstream attention and people and financial institutions are jumping in the crypto-market more and more every day. However, Friday bloodbath should be a first warning to all people who are not familiar with cryptocurrencies , or any other investments, and turned to Bitcoin for an easy source of earnings.

Forbes’ Jessie Damiani indicated 6 possible explanations why the Bitcoin prices dropped so low, while some see the drop as fallout from long-unresolved problems with Bitcoin’s infrastructure.

The drop is probably not the Bitcoin’s bubble burst invoked by many analysts over the year, but Bitcoin’s extreme volatility proves this market is risky almost as any penny stocks out there.