After a Trump Defeat

The US elections are still some days away; and any side can still win. However, the odds that Hillary Clinton will win the elections are quite good. Trump will lose. Let us take a look at how the how the loss will be for Trump.

Accepting the Results
Inspite of all the furor about whether or not Trump will accept the results of the elections, I believe that he will accept the results of the elections as soon as they are declared. Cinton’s victory will be by a large enough margin that there could be no objection to the result. Trump will probably avoid saying that the elections were rigged, because this may cause violence, and he will be blamed for it. He will resort to blaming his loss on the media and to Republican ‘traitors’.
Incidents of angry Trump supporters being violent will be isolated and short-lived.

Things will have Changed
Trump will not be able to go back to the way things were before his presidential bid.
The accusations of sexual assault by a number of women will keep him busy for a long while. He will probably not sue them, because it would be difficult for him to prove them wrong, and things will turn out worse for him if he sued and lost. After the elections, I expect more women to step up and accuse him of misbehavior.

The campaign has broken the aura of invincibility and impunity around Trump. Media is no longer scared of exposing him in various ways, and people are now more open to revealing his bad business practices (e.g. the case of Trump University).

His businesses will suffer from his presidential bid. His brand is now ‘damaged goods’ for a very big part of the population. Many of his former customers will no longer consider it classy to go to a Trump resort or to buy Trump branded products. His current supporters are not the kind of people who patronized his luxurious brand.
The Trump brand has suffered immensely in Latin America and the Muslim world.

Trump’s unethical business practices will be subject to increased media scrutiny. As a result, Trump will have to stop his practice of employing illegal immigrants, using dubious tax avoidance strategies, etc.. This will significantly increase his cost of doing business. If the Democrats win the House of Representatives, the loopholes that Trump used to avoid paying income tax will be closed.

Trump’s political clout (i.e. his ability to influence politicians) will not be the same as before. Previously, he would contribute to a wide range of politicians, and then collect favors as he needed. Now, only those who are politically aligned to him will ask for his support and potentially do him favors.

Trump TV
What Trump has gained is his popularity among a segment of working-class whites. Many of them will continue to be devoted fans after the elections. There are indications that Trump is preparing to launch Trump TV, which will cater to his new-found base of support. If he did so, it will have to position itself to the right of Fox News.
I believe that the space to the right of Fox News is too small. What will the difference be between Fox News and Trump TV in programing, in news content? If Trump’s outlandish statements would be the main difference, they will not be enough to sustain its audience for long.
It would make good business sense for him not to launch ‘Trump TV’, since it is poised to be a big failure.

Chaos Among Republicans
The elections will probably result in a Democrat majority in the Senate, and a reduced Republican majority in the House of Representtives.  This means that Clinton will be able to appoint progressive Supreme Court judges; but will have to court moderate Republicans to get her legislative proposals through the House of Representatives. She would need only a few Republican congressmen to break any boycott by the Tea Party and Trump’s hard=line followers in Congress. In the previous Congress, the Republicans had boycotted everything that President Obama proposed.

Republicans who supported Trump will blame those who didn’t for the defeat. This internal struggle will push the more moderate Republicans to cooperate more with the Democrats in passing legislation.

The Republicans  will have to reevaluate their opposition to the Affordable Care Act (a.k.a. Obamacare) and gay marriage. If they continue to oppose these, they stand to lose even more ground in subsequent elections.

Trump will retain his wealth after the elections are over; but he will lose a lot of prestige, and have a lower capacity to make money. He will continue to make political statements that may cause some commotion from time to time.

It is even likely that Trump will make another try for the presidency in 2020, especially if Clinton runs for reelection. If he does, the Republicans will be able to stop him early in the primaries.

 

A Brexit Timeline

On 23 June 2016, the people of the United Kingdom will vote in a referendum on whether their country should remain in, or leave, the European Union. If a majority votes to leave (or ‘Brexit’, for ‘British Exit from EU’), then the UK will indeed have to leave the EU.
This is one possible timeline for what would happen after the UK votes in favor of Brexit.

24 June to 31 December 2016
On 24 June, the referendum results are declared in the UK:
The UK Cabinet and Parliament decide that the country will indeed leave the European Union by 1 January 2017.

Negotiations between the UK and the EU are held.
They agree to maintain the free flow of goods and services between the UK and the EU; and to allow for visa-free travel between the UK and EU on the condition: that the UK will continue to adhere with EU product standards, financial and employment regulations; and that the UK makes a substantial annual contribution to the EU budget. The contribution would be similar with the arrangement the EU has with Norway (i.e. around Euro 100 per citizen), the UK will contribute Euro 7 billion/year (compared to its Euro 12 billion contribution at present)

The value of the British Pound will decline relative to the Euro.

The EU budget for 2017 and beyond is adjusted to compensate for he loss of the UK contribution by increasing country contributions from 1.23% of Gross National Income to 1.29%.

The UK opts to maintain agricultural subsidies at the same level as that of the EU’s CAP (Common Agricultural Policy), at least for a transition period of 3 years.

EU free trade talks with the US are suspended, because of the pending Brexit.

Foreign investments into the UK are greatly reduced during this period, due to uncertainty over the effect of the Brexit.

2017-2018
UK exports to the EU increases, as well as tourist arrivals, as a result of the Pound’s devaluation. Prices of all goods imported into the UK rise.

British companies are excluded from bidding for government contracts in the EU.
UK goods entering the EU are subjected to border contols, checking of documents and VAT payment.

The number of EU citizens working in the UK reduced by half (from 3 million to 1.5 million),  the number of UK citizens working in the EU are halved as well (from 1 million to 500 thousand)..
The UK continues to allow skilled workers to enter and work, but blocks the entry of unskilled workers. As a result, a lot of  unskilled jobs go to British citizens.
Wages for skilled workers from the EU rise because the Pound has devaluated relative to the Euro. At the same time, unskilled British workers get paid more because of the tighter labor market.

The people of the UK feel that their lives have gotten better as a result of the Brexit.

The UK holds early elections, the Conservatives win.

2019-2021
Foreign manufacturers (e.g. in the auto industry) do not establish new plants in the UK, but instead locate within the EU. Some plants in the UK are downsized.
Multinationals transfer their Europe headquarters from London to within the EU.
Many UK medium-sized service companies transfer to the EU, in order to be able to access the EU market.

The exodus of many companies and the restricted entry of foreign workers cause the UK real estate market to collapse.

UK inflation rises significantly higher than the EU’s 2% (due to higher cost of imported goods, less efficient production, etc).

UK reduces agricultural subsidies to farmers by half. Agricultural production, and exports to the EU, decrease.

The UK signs a free trade agreement with the US. The EU does not.

The UK feels significantly non-EU. The exodus of companies, cut in agricultural subsidies and production, etc are viewed as natural results of asserting sovereignty. (at least, this is what politicians tell the people).

2022-2024
The European Council (composed of the heads of all EU member countries) abolishes the need for unanimity for any of its decisions. Decisions that previously required unanimity will then be decided by qualified majority. This will greatly facilitate decision making.
The Eurogroup (the group of countries with the Euro currency) also decide to abolish the need for unanimity.
The European Parliament acquires the power to supervise the European Commission. The EP could now approve the nomination of individual Commission members, and could depose them by a vote of no-confidence.

UK trade with the EU declines.

The EU welcomes Turkey as a member. Accession talks with Ukraine begin.

Sweden and Denmark adopt the Euro.

EU establishes a Common Energy Policy, which reduces import prices for imported energy (especially from Russia), and coordinates alternative energy development.

EU Finance Ministry is established. The EUFM supervises the implementation of fiscal guidelines across the EU. Tax rates can only vary within limited ranges. Government expenditure.are allowed to vary only within limited ranges. (For example, a country could not have a disproportionately large military budget)
The EUFM issues EU Bonds. These will gradually replace bonds issued by national governments.

Frankfurt grows in importance as a financial center, rivalling London.

The exodus of foreign companies from the UK hurt Scotland the most within the UK; the Scots then pushes for another referendum on independence. In May 2022, the Scottish vote to leave the UK, starting on 1 January 2025.

Being outside the EU irritates the people of Northern Ireland. With the secession of Scotland, they have two EU countries as neighbors; meaning that there are border controls on both sides of their country. Then, the cut in agricultural subsidies hurts them. Both Protestants and Catholics want to secede from the UK and join the EU.

In Northern Ireland, people are inspired by the Scottish example, and demand to also have a referendum on independence.

EU integration accelerates; the UK starts to disintegrate.

2025-2027
The Euro is adopted throughout the whole EU. New members are required to adopt the Euro upon entry.

All EU countries are required to join the Shengen agreement on the free flow of persons.

Scotland becomes independent. It then applies for membership in the EU, and is accepted within a year.

Corsica and Catalonia secede from France and Spain respectively. They are accepted into the EU as new members. Cyprus reunites.

Northern Ireland becomes independent after majority of its citizens vote for it in a referendum. The country then forms a federation with the Republic of Ireland.

Moldova forms a federation with Romania, effectively joining the EU.

Ukraine and Serbia become members of the EU.  EU Accession talks with Bosnia, Iceland Norway, Montenegro, Kosovo, Macedonia and Georgia begin. Association agreements are signed by the EU with Belarus, Armenia, Albania and Azerbaijan.

The name ‘United Kingdom’ is dropped after the secession of Scotland and Northern Ireland. The country is renamed ‘England & Wales’.

The EU is growing to finally encompass all of Europe except for Russia and England & Wales.

 

 

Oil Price may drop to $10/barrel

Last year, I posted a blog Oil Price will settle at around $35 predicting that oil will stabilize (on the medium term) at $35/barrel. On 14 December, the price of Brent oil was below $38/barrel. So, will the oil price finally settle at $35/barrel? Yes, but not right away. The nature of markets is that they tend to overshoot equilibrium points. Thus, the price will probably overshoot downwards; resulting in short-term prices well below equilibrium.

The limits of this is determined by cost. The average cost of producing oil is $35/barrel – with $25 as the price of development, and $10 the price of extraction.  The costs differ, based on the particular method of producing oil. Land-based shallow wells cost less than $25/barrel to develop; and also less than $10/barrel to pump. Deep-sea wells cost $50 or more to develop, and $10/barrel to pump. Oil from tar sands cost very little to develop, but $50/barrel or more to extract.

The present situation of every producer pumping as much oil as they can would mean that the price would continue to drop below $35 (at least in the short term). Since production from existing wells continue to be profitable (i.e. the price of the oil is higher than the marginal cost of production); owners of those wells will continue pumping oil. They will do so until the price reaches $10/barrel,  the point where it will be more profitable to stop producing (for a large number of wells).
This means that, in the short term, the oil price could reach as low as $10/barrel.

This is only for the short term, however. After a while of oil at extremely low prices, when little or no new wells are drilled; the total oil produced will decrease because the depletion of existing wells is not compensated by production from new wells. The lower production will drive prices up, until it reaches the point where it would again be profitable to drill new wells.
Thus, the price will gradually rise, until it finally would stabilize at about $35/barrel.

In the long term (more than 5 years), the average cost of production would inevitably increase, as cheaper sources of oil get depleted. Thus, more and more, deep-sea wells and tar sands will take on a bigger proportion of the total oil produced. This will raise the average cost of production, meaning that the equilibrium point will rise.

In short, here are the projections for the oil price:
– short term (6 months to a year): as low as $10/barrel
– medium term (2 to 5 years): stable around $35/barrel
– long term (more than 5 yearsr): price will rise gradually, reflecting rising average production costs.

A Visit to Litomerice

On 2 December 2014, I went with a group of Filipinos to Litomerice, 64 kilometers north of Prague. which is located next to the foothills of the Sudetes mountain range in the northern part of the Czech Republic. Litomerice has a special link to the Philippines – it is the hometown of Ferdinand Blumentritt, Rizal’s close friend.  On 13 May 1887, Rizal visited Blumetritt in Litomerice (it was then known as Leitmeritz, and it was part of the Austria-Hungarian empire). He spent 4 days there.
Blumentritt is recognized by the Czechs as a great intellectual, and his friendship with Rizal is celebrated. In Litomerice, the date of Rizal’s arrival is a holiday, and there are ceremonies to mark the event. The town’s Bastion (which is a tower that was part of the town’s medieval defenses) has been transformed into a Rizal-Blumentritt exhibit. There is also a small park dedicated to Rizal, where a bust of Rizal is located. We also saw a Rizal bust in the main square (at the Salva Guarda Hotel).
Litomerice has a sister-city relationship with Calamba (Rizal’s birthplace) and with Dapitan (where Rizal was exiled), in the Philippines.
Blumentritt was a very close friend of Rizal, even though they only met personally during those 4 days. They corresponded extensively, and Rizal’s last letter before his execution was addressed to Blumentritt.

The Philippine-Czech connection goes deeper. The Rizal-Blumentritt friendship was part of the interaction of emigre Filipinos with others working for their nations’ freedom. Filipinos interacted with groups from Cuba to Eastern Europe, including the Czechs – who wanted to be independent from Austria-Hungary.

If you look at the Czech flag, you will notice an uncanny resemblance to the Philippine flag. Their flag has blue triangle, and two strips of white and red. If you interchange the blue with the white, and then add a sun and stars, you will get the Philippine flag.

During World War II, when the Japanese army invaded, the Czech community was the only foreign community in Manila that volunteered to fight against the Japanese. Fourteen of them joined the Filipinos and Americans in the Battle of Bataan, and they took part in the Bataan Death March. Six survived the war.

Terezin
About 3 kilometers away from Litomerice is Terezin (the Germans called it Theresienstadt). The Germans converted this fortress town into a Jewish ghetto, and the town’s prison into a concentration camp. The Terezin camp was only a transit camp, and executions were not done en masse; however, lots of people died there, mainly from disease and exhaustion.

Rosa Delma Machanova, a Filipina from Romblon, works as a guide in Terezin’s camp. She gave us an animated explanation while we toured the camp, including details about the cruelty of the camp commander, escape attempts, how prisoners were forced to kill other prisoners, etc.
After the war, the camp chief was imprisoned in Terezin while awaiting his trial and eventual execution.
Terezin was also where Gavrilo Princip, whose murder of Archduke Franz Ferdinand triggered World War I, was imprisoned.

 

Russia Sanctions Itself with Food Import Ban

The Russian government’s decision to ban food imports of the EU and US (plus those of Canada, Australia and Norway) is supposed to be a counter-sanction against the West for imposing sanctions on Russia’s weapons, high-tech and banking sectors; but it is really a sanction that Russia has imposed on itself.

Russia’s sanctions are measures that the EU was reluctant to impose, because they would directly hit Russian citizens. But Russia obliged by imposing them itself. The import ban will certainly hurt the Russian consumer, through higher prices and shortages. Higher-end consumer products (e.g. chocolates, French cheese etc) are among the products that are banned; but the big bulk of banned products are cheaper products that ordinary people eat (e.g. milk, fruits, vegetables, chicken, beef).

Food prices are sure to rise. There will be a shortage of products, at least in the short term. Arranging for alternative food sources will take time – it will take at least half a year before beef from Brazil would arrive in Moscow stores. Increasing local production would take years for some products. Fruit and vegetable production require a lot of labor, and there are not enough workers in the Russian countryside; to increase production, workers would need to be enticed to transfer to rural areas. Increasing production of fruits that come from trees e.g. apples, pears, etc will take years. Many Russian businesses will not invest in expanding the production of vegetables and fruits because the ban is formally only valid for one year.
Western products that manage to enter Russia thru Belarus, Turkey or China will cost more because of the longer supply chain.

The shortage of products will cause an increase in prices. In order to stem this rise in prices, the Russian govenment would need to subsidize food production and sales – either by giving direct subsidies to producers, or by buying up the food and selling to the people at a loss. In order to distribute limited stocks properly, the Russian government would need to institute a ration system of some sort.

The food shortages will also be a morale blow on the Russian public. In the beginning, the Russian consumer will accept the explanation that shortages are temporary, and that alternative sources will be found. But in a few months, it will be obvious that certain categories of food will remain in short supply for an extended period. And that price increases, food shortages and rationing will be permanent features of life.
At the same time, the Russians would know that people in other countries can buy these foods at much lower prices. The food ration system will remind them of the bad old days of the Soviet Union.  This will not be good for Putin’s popularity.

An irony of the import ban on Western foods is that Russia may need to increase its food imports from Ukraine. Ukraine was the food basket of the old Soviet Union, and it still supplies large amounts of food to Russia.

While Russia imports some 35% of its food needs, the EU exports only 1% of its total food production to Russia. The effect of the import ban on Russia will be a lot more than the effect on EU farmers. As Russians line up for their food rations,  Western consumers may notice a temporary reduction of the prices of certain food items.