Month: April 2017

The 5 election issues seen by the Komeito include mobile phone charge spots

The Komeito was out in force today trying to see what things were bothering potential voters. The Komeito asked the following 5 questions to passers by and requested them to place stickers against only one. Such is the level of data collection even kids were asked to put stickers. Feeling out future voters? Hardly. Smacked of garbage in, garbage out data collection.

1: Cut politicians salaries 20%

2: Minimum wage hike to 1000 yen/hour

3. Free high school and a cut in waiting lists for nurseries

4. Easier access to cancer screens and health tests

5. Establishment of more mobile phone charging stations

On point 1. Cutting salaries has a nice ring to it. Most senior politicians in Japan earn around $250,000. Cutting salaries would likely drive up other means of squeezing the corporate teat. One wonders if salaries were higher that more savvy people run for office as the opportunity cost is lowered

Point 2. The Japanese minimum wage is paltry 823yen/hr in 2017 up from 796 yen in 2016. The bigger concern for the Labour market is the long term trend to part time/contract and casual workers as a percentage of the workforce. Raising the minimum wage won’t solve for much. People can’t feel confident in their future if they’re aren’t secure in the job market. Even in Europe the problem is the same.

Point 3. The Abe government already has plans to build 800,000 extra daycare places by 2019. The problem isn’t in the number of schools but getting enough qualified Day-carers. Abe has raised the subsidies to secure more carers.

point 4: much of the health checks for cancer are run at the local level.

Point 5: if their 5th question is talking of mobile phone charging points the platform is running out of steam. Why not discuss deficit reduction, taxation or ways to revitalize small business. Is it any wonder the LDP won’t fear Komeito’s powerful platform. #makekomeitogreatagain ?

I was dead wrong! Post-tsunami Tohoku reconstruction has to be seen to be believed

Today I returned to Tohoku. My expectations were completely hit out of the ball park. I first visited the east coast of Tohoku (Fukushima & Miyagi Prefectures) 5 years ago to see the devastation left by the force of a M9.0 earthquake and tsunami that went as far as 6km inland and reached a height of 20 metres. No video does any justice. The Japanese Reconstruction Agency allocated $250bn to clean away the waste and start building sea walls and infrastructure. I rode over 100km of coast and I can only think that number is way too low. The picture below shows what had to be cleaned up in the town of Minamisanriku. That was a 3yr operation.

Every corner had dozens of earth movers which were building the ramparts. Dump trucks were hauling massive concrete slabs to lay on top of earth mounds. We’re talking over 100km of walls. We’re talking brand new highways connecting these fishing villages. New houses have been built by the hundred high on the hills accessed by brand new roads with no dwellings near sea level. Makeshift convenience stores are commonplace. We dined in a new ‘mini makeshift mall’ where locals operated restaurants and souvenir stores.

This building was four days old. The sitehad a mobile post office for convenience guarded by a 66yo man who lived in Kessenuma, 35km further north.

Kessunuma was famous for this boat that was washed 2km inland.

Hatakiyama-San said that things were slowly getting back to normality but there was still a long way to go. He rides a Harley-Davidson which he bought after the quake because after the horror of losing his home and almost his life he made a pledge to enjoy his life.

For the life of me I can’t work out how so much could be done for only $250bn in the first 5 years. 2016-2020 brings an extra $65bn to the fund but looking at how much has been spent to date I’m guessing the figure is closer to $500bn.

After visiting 5 years ago, I never in my wildest dreams could imagine how many houses, bridges, apartment buildings, sea walls, roads etc could have been constructed. In the large port town of Ishinomaki I’m guessing $250bn has spent on it alone. Not only are sea walls being erected out to sea, a back up a 15m wall is being built 100m behind the seaside to make sure of it. EVERYTHING within 1km of the sea is NEW. EVERYTHING.

I almost wonder whether this has now become a major jobs creation scheme like the New Deal. In many areas the sea walls seem surplus to requirements. Thousands upon thousands of concrete wave blockers are lined across the shoreline. Container type housing for workers numbers in the thousands. These guys must be getting some good coin. Many are young, unlike Tokyo where most workers you see at sites are much older.

Fukushima is a different story. We visited Namie and Tomioka, nearby the reactor. Ghost towns, often cordoned off. New highway service areas note radiation levels along the way.

I remain speechless at what I saw. I thought these towns would be left to die. This is a full speed ahead project and speaking to the locals confirms they don’t want to leave. Fighters to the end. 350,000 homes were destroyed in 2011. 16,000 killed by the tsunami. In 2017 there seems to be a lot to pride among the locals to prove their mettle. Ganbare Tohoku! You proved me wrong.

Not capitalism with warts but socialism with beauty spots

I was fortunate enough to attend an LDP function last night where Deputy PM and Minister of Finance Taro Aso spoke. The audience was largely retirees in their 60s-80s in the Yokohama area who in part likely came for the hotel buffet. I was the only foreigner to attend among 1,000 guests. Aso truthfully described the difference between Japan and the West. Talking of how many foreign politicians can’t understand how Japan can have so many vending machines because in their countries they’d be vandalized for their cash. Aso’s bigger point was made around deflation and how Japan is coping far better than most of the West, especially the EU. While there is a sense of celebrating an own goal, the biggest mistake made by the West in its analysis of the ‘lost two decades’ in Japan has been its unique society. Only in Japan could a population withstand two decades of hardship. Shared grief.

In the West, when it all goes to the dogs people will run as far away from the implosion as they can. Moral hazard is the order of the day. Make someone else pay. I recall the tale of a friend who had bought a condo in a ski resort in Yuzawa, Niigata Prefecture for around $20,000 off a family who had paid $800,000 for it during the bubble. They religiously paid off the loan as a form of moral obligation. In Japan, bankruptcy is seen as failure. A bankruptcy record is hung around one’s neck forever. In America, bankruptcy is seen as a badge of honor in some circles for someone pursuing the American Dream and in the next credit cycle, financial institutions will forgive the infraction, albeit at a slightly higher risk premium.

The point Aso was making was on the money. Japan is different. It is a society based on values. While the West may frown on the Japanese taking on a 250% debt: GDP ratio to allow the air to slowly leak out of a balloon, the society demands it. Despite all of the studies I’ve read on financial resurrection from deflation in the West I can safely say ‘society’ is the seemingly most overlooked yet most relevant part of the equation. As the game of convenient lies mount up from the mouths of politicians, a growing number of people are realizing that failure to act will lead to unpleasant truths. Economic cycles can only be toyed with to a point until trust leaves the system. The Japanese are indeed the most capable people on the planet to embrace change. It may take a tragedy, shock or disaster to force true action but one can be rest assured the people will unite in common purpose while the West go out of their way to look after themselves at the expense of all others.

Japan is not capitalism with warts but socialism with beauty spots. With the coming global financial train wreck approaching Japan is the best place to be.

When electoral maps speak much more than 1,000 words you’ll clearly get the picture

One thing that has struck me when looking at before and after electoral maps it is the clear signs of the growing divide of the haves and have nots. Of course people vote but imagine if land mass was the decider it would be a no contest. It is almost as if there is a bubonic plague spreading throughout many nations, especially Europe.

FRANCE (2017)- Le Pen’s first round in Dark Blue, Melenchon in Red, Macron in Grey

FRANCE (2002) Presidential first round (Jean Marie Le Pen in Dark Blue, Jacques Chirac light blue and Lionel Jospin in Pink

BREXIT (2016)- in blue – how many Labour safe areas turned against the party line

UK election (1997) – Labour Party (Red), Tory (Blue)

ITALY (2016)- referendum – the redder the stronger the NO vote (generally denotes poorer areas of Italy)

USA (2016)- Trump’s GOP in Red

USA (2008) – Obama in Blue, McCain in Red

AUSTRIA (2017) – Presidential election – Right wing Hofer in Blue, Socialist van der Bellen in green (the winner)

HUNGARIAN REFERENDUM ON MIGRANTS (2016) – Redder the zone the higher the NO vote

THE NETHERLANDS (2017) – election – Wilders’ VVD in blue

History of Dutch elections – VVD (Wilders) in blue

Trump’s tax cuts – how much does corporate America pay? You’ll be surprised by the necessary evil

How can Trump cut taxes to 15%? For those greedy corporates! Interestingly when one deep dives into the data two things emerge. One is that in 2016 net corporate tax receipts fell to around $444bn. Second US corporate taxes have slumped from 6% of GDP in the 1960s to around 2.4% of GDP today. Income tax and payroll taxes make up around 65% of the tax that fills the Treasury Department’s coffers. Of the $2.2 trillion that the government gets through squeezing us, they splurge around $3.6 trillion (see below). Since the tech bubble collapse, the budget deficit has becoming a gaping chasm. It is a massive hole to fill.

Naturally people scream that giving corporates massive tax breaks is obscene. What they tend to forget is that US corporations hide an obscene amount of taxable revenue (some estimate around $500bn p.a.) overseas. Apple’s €13bn tax bill fight in the EU should spring to mind. In any event we should look at corporate tax in the US that brings in around $444bn p.a. Slashing tax rates does not automatically imply that the $444bn will fall to $200bn. Looking at corporate profitability before tax one wonders are businesses really struggling? Pre-tax profits are hovering at around $2.2 trillion.

There is a whiff of Poland about Trump’s plan. Poland faced similar corporate tax avoidance issues but in 2004 introduced sensible taxation reform which cured the problem. To lure tax avoiders/evaders from their lairs, Polish athorities introduced a flat business tax (19%) and its impacts were so favourable that the government saw a 50% increase in income reported by those corporates in higher tax brackets before the change and a 50% increase in reported income from individuals that fell into upper income tax brackets. In 2009 income tax rates at the top were slashed from 40% to 32% Despite this income tax receipts jumped 17%. Since 2004 tax receipts soared 56.4%. It clearly proved that lowering taxes created much higher tax compliance. There was a psychological factor at play – the cut ‘encouraged’ honesty.

When breaking down the tax take by the Polish government we see that all levels of tax collection rose. Consumption, corporate, personal income and other tax categories jumped 45% or more.

So there is method to the madness. Talks of a $2 trillion deficit that will need to be funded if it goes ahead is not based on reasoned economics if the Polish example is anything to go by. Besides we live in such a debt-fueled world now that central banks will just print the gap if others won’t step in and buy it. So this is a risk Trump sees worth taking. Lower taxes, encourage US corporates to repatriate income abroad, create jobs and get small business (50% of employment in America) to expand and create a virtuous circle. Whether he can pass these taxes through remains to be seen. What we can say is that corporate taxes are a measly % of GDP and total tax take compared to income and payroll taxes. However if US corporates aren’t encouraged to build at home then it is harder to squeeze the workforce for the bulk of the revenue pie. Pretty simple really and there is actually very little to lose. So quit the angry ‘evil corporates’ tag line and change it to ‘necessary evil.’

Populism or Finallysomeoneislisteningism?

The chart above is showing the rise and rise of Front National, the party of Marine Le Pen. While we can be easily dismissive of her father Jean-Marie’s vitriol it is clear a growing number of French support her views. She has garnered 7.5mn votes, well beyond the 5.5mn her father achieved in round 2 in 2002. While she may well end up losing the second round there is no point rejoicing a get out of jail free card. These events are telling. It is not as if Le Pen is going away. Like Wilders in Holland she might be too extreme for some but not for 21.5% of eligible voters.

Is it any wonder the establishment parties were knocked out for the first time ever? She is listening to a growing number of French fed up with failure, typified by Hollande. Emmanuel Macron might seem a fresh alternative at 39yo but we’ve seen what a disaster youth can be in the form of Canadian PM Justin Trudeau. His popularity is dropping like a stone as he is showing youth doesn’t equate to fresh ideas. Perhaps youth is one of his appeals which frankly is a worry although some might argue he is in touch with the 60s age group too.

Macron was a Socialist under Hollande. Very rarely does one change their party spots. In fact should he win I’m guessing he’ll be more of the same. He’ll pander to soft options and cosy up to the EU but that is unlikely to change the fortunes of those suffering the effects of long term (and youth) unemployment. That just makes Le Pen stronger the next time around. France will continue to suffer more terrorist attacks and weak leadership emboldens an enemy.

Juncker et al will view a Macron victory as a win for the EU but make no bones about the tsunami of discontent that lives inside the union. Now we have an unhinged Turkey which can not benefit the EU in any way. Greece is still a basket case. Italy worsens by the day and is far from a dead cert to avoid Italexit as its referendum concluded indirectly.

The denial from EU flunkies after the Dutch election was staggering. The comments talking of a triumph for the EU couldn’t be further from the mark. The words echoed the type of denial one might find from the England Rugby coach for why his team didn’t make the World Cup play-offs at the home tournament The fans were shaking their heads at the dismal explanation.

In almost every EU country the right wing/anti-establishment parties continue to grow in strength. Even if they haven’t won outright majorities, incumbent parties can’t rest on their laurels. They must adapt. Australians have abandoned the two major parties in droves. The no nonsense One Nation Party is filling the vacuum because they are doing one thing – listening. It is the one thing the EU continues to miss – reform. If they think the Dutch, Austrian and French election results are endorsements this year they’re only accelerating the path to failure. We all know the outcome of national coaches who fail at the highest levels!

Le Pen vs Macron – Post election followers

Several days ago I noted that the Twitter following of Emmanuel Macron had experienced the strongest follower growth with Marine Le Pen in second. That was the result. On Facebook the growth differential had Macron in 3rd. Looking at the outcome of the day before the election and the day after the result we see that Macron grew 30,251 followers vs Le Pen’s 20,644. On Facebook we see that Le Pen has grown 41,279 and Macron 30,996 although as a percentage, Macron has grown 12% vs 3% for Le Pen.

In any event, Twitter was more accurate and Macron would seem to carry the advantage. One thing we can say is that the establishment has been thumped again. Surely Eurocrats will breathe a sigh of relief but it is somewhat irrelevant. The outcome of May 7 will have no bearing on the ultimate demise of the EU. If the EU is constantly having to fight fires to justify its legitimacy it is clearly not deserved to rule the continent. Will keep tabs on the lead up to May 7. At this stage advantage Macron if we assume Twitter is more accurate.

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