Switzerland Tops World's Most Competitive Countries Index (Yemen Least)

Something else "Murica is no longer #1 in...

A recently released World Economic Forum report has found that the global economy is recovering well nearly a decade on from the start of the global financial crisis with GDP growth hitting 3.5 percent in 2017. The eurozone in particular is regaining traction with 1.9 percent growth expected this year. As Statista"s Niall McCarthy points out, the improvement in Europe"s economic fortunes can be seen in the report and the following infographic which shows that six European economies are among the world"s ten most competitive.

You will find more statistics at Statista

The World Economic Forum defines national competitiveness as the set of institutions, policies and factors determining productivity levels. 

Switzerland grabbed top spot in the report with an index score of 5.86 out of 7, recording strong and balanced results across the most important determining factors such as health, primary education and a reliable macroeconomic environment.

The United States comes second for national competitiveness, though the report notes that it needs to improve its macroeconomic environment as well as health and education, both of which scored poorly.

Eight of the world"s ten worst countries for national competitiveness were in Africa.

Yemen has been devasted by war in recent years and it comes bottom with a score of 2.87. It was followed by Mozambique and Chad, both of which had a score of less than three. The only other non-African country in the bottom ten was Haiti which scored 3.22.

Look Out Manhattan - Chinese Foreign Real-Estate Spending Plunges 82%

Earlier this month, Morgan Stanley warned that commercial real estate prices in New York City, Sydney and London would likely take a hit over the next two years as Chinese investors pull out of foreign property markets.

The pullback, they said, would be driven by China’s latest crackdown on capital outflows and corporate leverage, which they argued would lead to an 84% drop in overseas property investment by Chinese corporations during 2017, and another 18% in 2018.

Sure enough, official data released by China’s Ministry of Commerce have proven the first part of Morgan Stanley’s thesis correct. Data showed that outbound investment in real estate was particularly hard hit during the first half of the year, plunging 82%.

“According to official data, outbound investment by China’s real estate sector fell 82% year-on-year in the first half, to comprise just 2% of all outbound investment for the period.”

Overall, outbound direct investment to 145 countries declined to $48.19 billion, an annualized drop of 45.8%, according to China Banking News.

The decline is a result of a crackdown by Chinese authorities after corporations went on a foreign-acquisition spree that saw them spend nearly $300 billion buying foreign companies and assets, with China’s four most acquisitive firms accounting for $55 billion, or 18%, of the country’s total. The acquisitions aggravated capital outflows, creating a mountain of debt and making regulators uneasy. Late last month, Chinese authorities ordered Anbang Insurance Group to liquidate its overseas holdings. In June, authorities asked local banks to evaluate whether Anbang and three of its peers posed a “systemic risk” to the country’s financial system. As Morgan Stanley noted, these firms were responsible for billions of dollars of commercial real-estate investments in the US, UK, Australia and Hong Kong.

The pullback will likely be equally as devastating for residential home prices. Average sales prices for Manhattan residential real estate has continued to climb, but cracks are starting to appear. As we pointed out two days ago, 25% of homes sold in 2Q still experienced a price cut, with that number rising to 40-60% in trendy neighborhoods like the Upper East Side.

While falling real-estate prices would be an inconvenience for corrupt Chinese officials and other shady investors trying to stash their money as far away as possible from their homeland, they’d be a welcome relief for renters and young couples or individuals looking to buy their first home.

Across the US, asking rents hit all-time highs earlier this year.

Kushner Family Tells Rich Chinese: Invest $500,000 and Immigrate to the United States

By EconMatters

I was debating whether to put this post on our sister site Asia Pop Culture, but decided EconMatters.com seems a more appropriate place.  

Washington Post journalists attended the last Saturday presentation at the Ritz-Carlton Hotel in Beijing saw and heard the pitch to the rich Chinese -- They could obtain EB-5 investor visas to the U.S. if they invested at least $500,000 into one of the Kushner family’s development projects.

The presentation was reportedly delivered by Nicole Kushner Meyer, sister of Jared Kushner. As you know, Jared Kushner is the presidential adviser and son-in-law, husband of Ivana Trump.

Now what is EB-5 visa exactly? Wikipedia explains that the EB-5 visa provides a method of obtaining a green card for foreign nationals who can invest from $500,000 to one million dollars in a "new commercial enterprise" in the United States. The program has been criticized as akin to “U.S. citizenship for sale,” and it has come under scrutiny after a series of fraud and scandals.

According to the Post, the tagline on a brochure for the event:

“Invest $500,000 and immigrate to the United States.”

The New York Times reported that during the presentation, there was a slide describing Donald Trump as a "key decision maker" about the future of the EB-5 program.  So the potential investors were then advised to "invest sooner rather than later in case visa rules change under the Trump administration."

“Invest early, and you will invest under the old rules,” one speaker said.

A slide displaying President Trump as the key decision maker in the EB-5 program (graphic source: New York Times)

The highlight of the event was Meyer, a principal for the company, who was described in promotional materials as Jared Kushner"s sister.  Meyer told the audience of about 100 wealthy Chinese investors that the project "means a lot to me and my entire family."

The Post said it well in a nutshell:

".....the session Saturday demonstrated that the [Kushner] company is perceived as enjoying close ties to the Trump administration. Ethics laws prohibit government officials from profiting personally from their public-sector work."

Can this be any more obvious a ploy to cash in and take advantage of the Kushner family new proximity to power?

I"m not a legal and ethics expert....  But since Jared Kushner has indicated that he has divested from the family business, the loophole of the so-called Ethics Law could be that Jared"s sister is not exactly a "government official"?  So if the sister"s company benefits, it will not be on Jared?  I"m pretty sure the money will eventually find Jared.....

Anyway, I guess we will wait to see how the spin doctors will find a way out of this "incredibly stupid and highly inappropriate" mess as described by Richard Painter, the former chief White House ethics lawyer in President George W. Bush’s administration.  Well that is how the rich gets richer, and ........  

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Chinese Elites Scramble To Apply For US 'Golden Ticket' Visa

As members of Congress in Washington debate raising the minimum required to obtain a U.S. immigrant investor visa from $500,000 to $1.35 million, Bloomberg reports concern about the hike has set off a scramble among wealthy would-be participants in China.

China’s wealthy, using not-always-legal means to skirt capital controls to get their money out and at the same time gain residency in the U.S., are continuing to dwarf all others as the largest participants in the EB-5 program, despite heightened measures by the Chinese government.

Chinese investors, several thousand a year, have made up as much as 85 percent of the annual EB-5 investor total, according to U.S. data provided by Rosen Consulting and the Asia Society. In 2015, China overtook Canada as the biggest foreign buyer of U.S. homes.

Because Chinese individuals are limited to exchanging $50,000 worth of yuan a year, a 10th of what the EB-5 program requires, Bloomberg reports that some agents are advising clients who don’t already have assets offshore to use a means nicknamed "smurfing" to move their money.

"Our suggestion to the client is to open three to four personal accounts in the U.S. or line up three to four friends’ accounts, so they can split the money and wire it to different personal accounts without being put on a blacklist by the Chinese authorities," said a Shanghai-based real estate agent who gave the surname Dong.

"It may require a trip to the States to do so to facilitate the process."

While the government in Beijing spent much of 2016 working to stop its citizens sending money abroad in order to stabilize its declining currency and foreign reserves, Chinese investors’ use of EB-5 continued anyway, totaling $3.8 billion in the fiscal year that ended Sept. 30, according to data from the U.S. State Department.

EB-5 started decades ago as a way to create jobs in needy U.S. neighborhoods by attracting foreign investment. But it has run into political opposition amid charges the program is benefiting billionaire developers and being dominated by wealthy Chinese.

"EB-5 has been a key program for capital flight that has been abused by Americans and Chinese people seeking to game the system," said Andrew Collier, an independent analyst in Hong Kong and former president of Bank of China International USA.

While there’s no suggestion of wrongdoing by developers that receive funding from EB-5 (including the family of Jared Kushner, President Donald Trump’s son-in-law and senior adviser, who is seeking $850 million in EB-5 fundingrefinance and reconstruct its New York office building at 666 Fifth Avenue), a series of Securities and Exchange Commission cases against EB-5-linked immigrant investor centers led the U.S. Citizenship and Immigration Services to announce last week that they would audit the centers amid concern about fraud.

Changes to the EB-5 minimum would affect property developers who rely on the program as a funding channel, said Michael Shaoul, chief executive officer at Marketfield Asset Management in New York.

"Any interruption of the program or reduction in Chinese participation would have a meaningful effect on a development cycle that is already showing signs of strain in certain key U.S. cities," he said by email.

Norway Central Banker Warns Of Massive 50% Drop In Wealth Fund Assets To Cover Budget Deficits

Back in August, we noted that, for the first time since it"s creation in 1996, the Norwegian government had started raiding its sovereign wealth fund in 2016 to cover government deficits.  Then in October the Nordic country revealed plans to massively increase withdrawals by over 25% in 2017, to $15 billion, to cover a budget hole that was expected to be roughly 8% of GDP. 

That said, Norway"s ultimate GDP potential, and therefore budget deficits, are heavily dependent on oil prices so any further weakening of crude could result in even more withdrawals.  Moreover, given the substantial YoY increase, it"s important to recall that there are fiscal limits imposed on fund withdrawals equal to 4% of assets, or roughly $36 billion, which could come into play at some point in the future if oil prices remain "lower for longer."

Of course the withdrawals accelerated just as the heavily oil-dependent economy of Norway started to absorb the impact of lower oil prices.

And what do you do when you depend on portfolio returns to fund everyday living expenses but are faced with extremely low returns courtesy of artificially depressed international bond yields?  Well, you just buy more equities, of course.  Which, as we noted back in December, was exactly the motivation behind a decision to increase the fund"s equity allocation from 60%, to a staggering 75%, all while funneling another $130 billion to the global equity bubble.

The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 75 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.

The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected “equity risk premium,” or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.

“In our analyses, this is clearly evident in global data: internationally, growth in firms’ cash flows and equity returns are correlated with growth in the global economy,” Deputy Governor Egil Matsen said in a speech Thursday in Oslo. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

But despite their best efforts to protect the principle balance of Norway"s sovereign wealth fund through statutory spending caps and buying more and more equities, Norway’s central bank governor Oystein Olsen warned earlier today that increasing reliance on the fund to cover budget deficits could result in a "sharp reduction" in the fund"s capital over the next 10 years.  Per Bloomberg:

Governor Oystein Olsen said that the continued rise in oil cash spending, which now accounts for about 20 percent of the budget and 8 percent of gross domestic product, must now be halted to protect the $900 billion fund, the world’s largest sovereign pool of cash.

“With a high level of oil revenue spending, there’s a risk of a sharp reduction in the fund’s capital,” Olsen said in the traditional Annual Address in Oslo Thursday. “This could, for example, happen if a global recession triggers both a decline in oil revenue and low or negative returns on the fund’s capital.”

In fact, in some of the more dire scenarios, Olsen warned that 50% of the fund"s $900 billion in assets could be wiped out over the next 10 years in the event of a global recession that kept oil prices low while also driving equity valuations down.

While the fund, which is overseen by the central bank, so far has said it’s more than able to handle outflows without selling assets, Olsen’s speech did lift the lid to reveal some of the worst case scenarios being calculated by the investor.

For example, it sees a 1 percent chance of a 50 percent decline over 10 years if spending is kept at the current level of about 3 percent of the fund. If spending is raised to 4 percent that probability rises to about 5 percent. If the fund’s allocation to stocks is boosted to 75 percent from 60 percent, which is currently being discussed, the probabilities rise even further to about 2 percent and 6 percent, respectively.

“This shows what you may risk if you increase oil spending from today’s level,” Olsen said in a separate interview. “This helps us to strengthen the message.”

“It must be recognized, however, that the longer-term challenges facing the the Norwegian economy can’t be resolved by spending more oil revenue and keeping interest rates low,” he said in the speech, arguing the Norwegian economy needs more legs to stand on.

That said, we wouldn"t be too worried because equity prices never go down, right?  Silly Central Banker...