Elinor Ostrom : La question des « biens communs mondiaux »

Elinor Ostrom, première femme ayant obtenu le prix "Nobel" d'économie en 2009, est morte mardi 12 juin 2012 à 78 ans. Elle était aussi une des rares "Nobel" critiques à l'égard de la théorie néoclassique. Dans la foulée de la déconfiture de Rio+20 il nous a semblé important de rappeler ses travaux.

Les travaux de E. Ostrom sur les  “biens communs mondiaux” dans un courant néo-institutionnaliste opposé à la théorie économique néo-classique qui ont remis en lumière la préoccupation de dessiner un cadre conceptuel capable de fournir des clés politiques pour une gestion de ce qui échappe - ou doit échapper - au marché.

Un texte de Jean-Marie Harribey,  ainsi que  le texte du discours lors de la remise du Nobel par Elinor Ostrom.

Dans sa démarche néo-institutionnaliste, l'intérêt est tout de même de désigner par "communs" des systèmes de règles collectives et non plus seulement les objets sur lesquels portent ces règles, ni dans leurs supposées qualités intrinsèques, ni dans leurs qualités construites par la société.

Mais la faille de la thèse d'Ostrom est de rester prisonnière de la croyance que les systèmes de règles sont le produit de délibérations entre des acteurs à égalité à l'intérieur d'une communauté. Finalement, le dilemme n'est pas surmonté entre, d'un côté, les droits de propriété individuels à la John Locke, qui fait découler l'Etat du libre consentement des individus à parachever le contrat social qu'ils ont noué, et de l'autre, la remise d'une part de liberté pour plus de sécurité entre les mains du Léviathan à la Thomas Hobbes.

Rousseau n'était peut-être pas le moins perspicace d'avoir situé le fondement du politique dans la souveraineté du peuple. D'où la prudence dont nous devrions faire preuve dans l'usage de l'antilibéralisme, car nous ne dirons jamais assez qu'il s'adresse moins à la philosophie politique libérale qu'à la doctrine économique.

Ce qui renvoie au fait que le capitalisme, dont le principe est d'élargir toujours la frontière de la propriété privée, ne doit pas être confondu avec le marché, et aussi au fait qu'un après-capitalisme ne supprimera pas le marché en tant qu'une des formes de coordination, forme bornée collectivement bien sûr. En tant que systèmes de règles, le marché et la planification démocratique pourraient alors être considérés comme des… biens collectifs publics. Mais c'est une autre histoire…

Le bien commun est une construction sociale. Apports et limites d'Elinor Ostrom

Jean-Marie Harribey, économiste, maître de conférences à l'université Montesquieu-Bordeaux IV L'Economie politique n° 049 - janvier 2011

Dans les débats préparatoires au « Sommet de la terre » (Rio, 1992), la polémique Ostrom / Harding devint un « standard » de débat écologique. Les « biens communs mondiaux » (Global Commons) désignent alors : l’atmosphère et la biodiversité. Depuis, ils se sont multipliés. L’éducation, l’eau, Internet et les algorithmes mathématiques ou informatiques, les connaissances médicamenteuses et plus généralement la propriété intellectuelle : partout aujourd’hui le débat fait rage entre « l’enclosure » par la propriété privée ou la gestion communautaire des biens communs. Avec cette difficulté supplémentaire que la « communauté mondiale »… n’existe pas.

Le simple usage de l’expression Global Commons dans les débats préparatoires à Rio évoque directement les « commons », c’est à dire les terrains communaux du Moyen Age, que les paysans riches ont enclos à leur seul profit. Il est indéniable que la révolution agricole, qui exigeait l’amendement des terres à long terme, fut favorisée par la mise à la disposition à long terme des terres entre les mains d’un même exploitant. Mais quid de la défense du climat ? Dans les conférence préparatoires à Rio, la polémique éclata entre entre le World Resources Institute de Washigton et le Center for Science and Environment de New-Delhi.

Le WRI , reconnaissant le péril de la dérive climatique, proposait d’imposer une décroissance uniforme des émissions de gaz à effet de serre à tous les pays. Cela revenait à officialiser d’abord les « droits acquis à polluer » de chaque pays (et les Etats-Unis polluaient cent fois plus, par habitant, que le Bangladesh), pour astreindre ensuite les « propriétaires » à des mesures de prudence. Ce que j’assimilais alors à « l’enclosure des biens communaux globaux». Le CSE, dans un rapport retentissant d’Anil Agarwel et Sunita Nerain, taxa la position du WRI d’ « éco-impérialisme », et proposa à l’inverse un objectif de répartition égalitaire de quota par tête, les pays en excédant d’émission devant indemniser les pays moins polluant dont ils empiétaient sur les « droits ».

Cette proposition est à l’origine de ce qu’allait finalement formuler le Protocole de Kyoto et le système européen d’allocation et de marché des quotas. On voit que ce mode de régulation, qui combine une instance politique distributrice de quotas, et un marché de redistribution ( à total constant) est beaucoup plus proche des systèmes de gestion semi décentralisés des biens communs dont parle Ostrom. Les écologistes ne s’y trompèrent pas, qui attribuèrent le prix Nobel alternatif à Anil Agarwal, tandis que la vieille gauche productiviste ne voyait là que « vente des droits à polluer » et « marchandisation de la Nature ».

Copenhague va d’abord se jouer sur  la distribution de quotas plus ou moins contraignants, les pays étant d’autant plus contraints à la baisse qu’ils dépassent le « soutenable ». Mais il faudra aussi, au nom de la dette écologique (c’est-à-dire des stocks déjà émis), aider les pays les mois développés industriellement, ceux donc qui ont le moins pollué dans le passé, à s’adapter plus rapidement aux contraintes. Bref, inventer une réciprocité écologique globale. Vaste programme.

Bien entendu, toute bonne idée est faite pour être trahie, et nous ne pouvons que lutter pour qu’elle soit récupérée par les institutions de la manière la plus correcte possible. Encore faut-il bien comprendre de quoi on parle.

« Biens commun globaux ». Trois mots dont chacun  suscite  d’immenses débats.

« Biens » (goods) d’abord ! L’éducation (l’accès au bien commun qu’est le savoir) n’est pas perçue  comme un bien  par la plupart des enfants, ni même par leurs parents ouvriers et paysans pauvres. L’école, c’est d’abord un manque à gagner. Il a fallu payer les parents (par des allocations familiales) pour qu’il consentent à envoyer leurs enfant à l’école… Mais le contenu des connaissance lui-même, la plupart des capitalistes comprennent leur nature de biens et essaient donc d’en faire des biens «  exclusifs », par des brevets, ou par une fixation sur un support payant…

À l’inverse, se déplacer le pus vite possible en voiture fut longtemps perçu comme un bien privé, et il est encore difficile de le faire reconnaître comme un des « maux «  publics. Même les télévisons publiques retransmettent les compétitions de Formule 1, le Paris –Dakar, sans avoir conscience de commettre une apologie de crime contre l’Humanité.

On passe justement de la « mesure » au « sens », du nomos au logos, de l’économie à l’écologie, quand on se demande si ce qu’on appelle bien en est vraiment un…

« Commun ». Le caractère « commun » n’est pas inhérent au « bien », mais un caractère social, historiquement daté et modifiable. Je reconnais qu’un bien techniquement non rival et non-exclusif appelle une gestion comme bien commun. Mais les dominants ne manquent pas d’imagination pour rendre exclusif ce qui ne l’est pas a priori, et faire par exemple de la « terre » (ce fragment d’environnement) une propriété privée : en l’enclosant et en la défendant par des barbelés, un fusil, des lois. On croire, selon une vieille illusion de Marx, que la connaissance collective étant aujourd’hui le principal facteur de production, la passage au communisme est dorénavant inéluctable. Ce fut la thèse de l’école hongroise des années 60 (la « révolution scientifique et technique » de Radovan Richta), c’est aujourd’hui un peu la thèse des tenants du « capitalisme cognitif ». Ce qui est sûr, c’est que la bataille pour l’enclosure de la Propriété Intellectuelle est l’un des enjeux majeurs de ce début du XXIe siècle, dont les batailles sur le brevet logiciel, les DRM ou Hadopis ne sont que des escarmouches.

À noter que l’opposition à l’enclosure des biens communs s’exprime souvent sous la bannière de « droits universel à… » (à l’eau, à la connaissance, etc). Ce à quoi le partisans de Harding répondent évidemment que bien sûr, bien sûr, mais que pour sauvegarder et ne pas gaspiller un bien universel il faut d’abord l’enclore…

« Globaux ». On appelle ainsi (en particulier le pénétrant Olivier Godard) les biens qui, de par leur étendue, ne peuvent être géré par les lois d’un pays ou d’une entité politique constituée (telle l’Union européenne). Ne pas croire que de tels biens (typiquement : les mers) soient des res nullius, des choses n’appartenant à personne. Un droit de la mer international existe depuis Aliénor d’Aquitaine ( Rôles d’Oléron, 1160). Des conventions protégeant les bien communs globaux environnementaux se développent rapidement avec les Accords Internationaux sur l’Environnement (pluies acides, espèces en danger, couche d’ozone, climat, biodiversité), entrant souvent en collision avec les règles de l’OMC, mais pouvant se targuer de l’exemple des règles phytosanitaires (quarantaine) qui prévalent sur celles de l’OMC.

La difficulté, c’est qu’un bien a souvent des dimensions à la fois nationales, infranationales (communautaires) et supranationales (globales). D’où les conflits souvent à contre emploi. Ne dites pas à un sud-américain même de gauche, dans une conférence internationale, que l'accès à l'eau est un droit universel, il comprendra que vous contestez la souveraineté de son pays sur l’Amazone. La biodiversité et surtout, les  connaissances traditionnelles sur son utilité ? nous en sommes redevables aux communautés indigènes ou paysanne pauvres. Mais les Etats les considèrent comme du patrimoine national au même titre que les champs pétrolifères, les firmes pharmaceutiques comme un… bien commun mondial, c’est à dire gratuit !  Nous savons que la maintenance d’un bien commun mérite pourtant rémunération. Comment défendre la gratuité des logiciels et refuser la bio-piraterie ? Vaste sujet de colloque...

Annexe : BEYOND MARKETS AND STATES: POLYCENTRIC GOVERNANCE OF COMPLEX ECONOMIC SYSTEMS Prize Lecture, December 8, 2009 by ELINOR OSTROM

What the heck is happening with oil prices?

How low can oil prices go? 

West Texas Intermediate (WTI) oil is selling in the $80 ranger per barrel — way down from recent postings near $110. Overseas, the Brent price for oil is about $97 per barrel — way down from $125 per barrel as recently as early May.

What’s going on? How low can oil prices go? Are we looking at the beginning of a major price slide? Is the oil and oil service investment space under a pricing assault?

I doubt it. Here’s why: 40% of global oil production comes from places where the national governments cannot afford oil prices to go much lower than they are currently.

The nearby chart tells the tale.

This chart, courtesy of Pierre Sigonney, chief economist of the French oil giant Total SA, describes the oil price level that a series of major producers require in order to balance their national budgets. The red-shaded region at the bottom is the “breakeven cost” for producers (as estimated by Total). That is, the red shading reflects how much it costs to lift barrels of crude oil out of the ground.

As you can see from the chart, many producers lift oil at an overall cost of $10-20 per barrel. Even the major international players (the red bar on the far right) are in the $40 per barrel average for production.

But take a look at that yellow “budget break-even” line. That’s the price at which the major petro-players have to sell oil in order to fund their national spending. Keep in mind that all of the countries on the list — from Qatar to Venezuela — rely on oil sales for the vast majority of their national income.

Specifically, Libya, Saudi Arabia, Algeria, Iraq, Angola, Nigeria, Ecuador, Iran, Russia and Venezuela all require oil prices of at least $80-100 (or more) just to have sufficient income to run their national budgets. Without a strong oil price, these countries will have bread lines and riots. West Texas Intermediate at $82 a barrel and Brent hovering under $100 is the threshold of pain for the world’s largest oil-producing nations.

Now consider that the 10 countries I just named account for about 35 million barrels of global oil output every day — over 40% of total world crude oil output. (Add in natural gas and gas liquids, and it’s even more.) That’s 40% of world crude output coming from places where the national governments cannot tolerate a price drop for long. So no… the oil price shouldn’t go down much from here.

Still, let’s do some devil’s advocacy and think it all through. The European economy is on the ropes. Chinese economic activity is decelerating. Japan is in a bizarre, permanent recession. The US economy appears to be stalling, and is possibly slipping back into Recession II.

So yes… there are problems all over the place. We could see precipitous drops in energy demand from many quarters. But if oil prices fall too far, they probably won’t stay down for long. The world’s largest oil producers cannot afford it, in any sense of the word.

Indeed, an oil price drop will present another re-entry opportunity for investors to pick up more shares of great oil production and/or oil service companies at a relative bargain. Keep in mind that a pullback in share price could also make the dividend yield even more attractive for many oil players.

Between now and the end of the year, I expect to see oil prices firm up gradually, perhaps even violently. We could also see another sharp, upward spike based on all manner of political and technical events.

The consulting firm KPMG recently predicted that oil prices will remain volatile for the rest of the year. There’s a chance we could see over $140 per barrel, according to a wide-ranging poll of energy executives by KPMG. The underlying issues are economic uncertainty, geopolitical risk, rising operational costs and regulatory concerns.

Libya is back online, for example. But according to what I’ve been told, the wartime damage from earlier this year was not properly repaired. Thus Libyan production facilities, pipelines, pumps, etc., are more jury-rigged than not. We could see a sudden drop in Libyan output based on mechanical and engineering issues. And Libya is just one of the ten countries on that chart above.

There is plenty of risk of supply disruptions from the other nine as well.

Buy the dips!

By Byron King

Russian Siberia Update

Approaching point of no return

Russian business monitor RBC daily, the Petersburgskaya Politika Foundation and the Russian Academy of National Economy have prepared a new ranking of innovation activity in Russia’s regions.

It covers the months of spring and shows the Novosibirsk region as ranked number one. The region was number three in the previous ranking in late winter. Experts consider its innovation activity “balanced” and pay special attention to the region’s plans to create a Siberian analog of Skolkovo. The runner-up is Moscow, a region never mentioned among the top regions over the past 18 months. The rankers attribute Moscow’s second place to the “vast reorganization of its industrial sector.” The Krasnoyarsk region is number three now (it led the winter ranking). TheTomsk region, number four, is now on a Top-25 list of international innovation centers. Number five is the Kaluga region with its growing pharma innovation cluster.

Overall, the experts feel there’s a certain slowdown in the regions that have always been considered Russia’s innovation drivers, attributing this to a reshuffle in leadership following the presidential election, and to somewhat unclear government policies as regards modernization.

And it’s no wonder we once again have three Siberian regions highlighted here. I feel there’s long-term, very strong development for Siberia as a regional innovation cluster.

I believe the culture in Siberia is different from the culture in St. Petersburg or Moscow, or the Urals. The Siberians are very independent-minded; their culture is very exploratory and creative. Different leaders in the region are coming to these conclusions that their population and their regional competitive advantages leave them to promote themselves as innovation clusters, and therefore the process will continue.

There’ll be continued development in Novosibirsk, Krasnoyarsk and Tomsk. I think this competition between the regions will stimulate independent development regardless of what Moscow initiatives are or what Moscow support comes. 

Innovation is the necessary next step

Today, just months after the presidential election, government policies as regards modernization may still be unclear. I think that over the course of this year the administration will probably change a few faces and policies. My personal opinion is that these changes will inevitably, in the long run, accelerate the drive toward innovation.

This society cannot operate as a commodity economy indefinitely. As a macroeconomist I can say that the general commodity cycle of the past ten years is coming to a close and the generally high prices of commodities will probably begin to fall.

China, the largest commodity prices driver over the past 25 years, cannot sustain its eight-to-ten percent growth rate and in the next 20 years China’s economy will consume fewer commodities. The European Union is at a point of stagnation and cannot be expected to grow more than one or two percent per annum. The US economy is at a point of potentially growing at a two-to-three percent rate, but it’s not clear if it’s going to achieve that or not; it depends politically on what happens with the election in November. But generally, the prognosis is that the commodity-driven economies will suffer over the next 20 years.

Russia, in my opinion, has no choice but to diversify its economy and modernize as rapidly as possible. One of the key steps to be taken over the next two years should be to incentivize medium and large-scale Russian companies to invest in themselves. This will subsequently create a greater-scale market for innovation inside of Russia. If more Russian companies buy Russian innovation and prove to the rest of the world that Russian technologies can save money and improve efficiency, it will lower the risk for foreigners to buy those technologies.

Another step is restructuring the Russian tax policies to encourage angel-level investors to take risks investing in early-stage technology projects to bring them from the innovation laboratory into commercialization and into markets. At Investlogic we plan to be part of it !

Outsourcing to Russia: Nizhny Novgorod

As an example of development and outsourcing destinations in Eastern Europe we looked at Nizny Novgorod, a town with a well-established software development industry.
Russia’s IT industry is typically dominated by its two largest and economically strongest cities, Moscow and Saint Petersburg. Nonetheless, the slightly smaller city of Nizhny Novgorod does not fall behind and has currently established itself as one of the major centers in the Russian software development sector. With a population of 1,250,615 Nizhny Novgorod is currently among the leaders in quantity of software application developers.

One of the most prominent players in Nizhny Novgorod’s IT market is Intel, who has been present on the local market for a significant period of time. Intel has two main departments in Nizhny Novgorod – a software development center, employing over 500 software engineers, and a data center. Nizhny Novgorod also attracts a number of nearshore outsourcing companies, such as MERA Networks, Teleca, Luximax and Tecom, among many others.

In terms of training and education, Nizhny Novgorod has 25 scientific R&D institutions, focusing on telecommunications, radio technology and theoretical and applied physics. Situated in the city are also 33 educational centers. Among the ones that provide the most focused training for working in the IT sector are Nizhny Novgorod State University, Nizhny Novgorod Technical University and Nizhny Novgorod Institute of Information Technology.

The latter used to be a former MERA Networks training centre, which reflects the close cooperation between local educational institutions and employers of software developers. Nizhny Novgorod Institute of Information Technology provides courses in IT, software development, system administration, telecommunications, Internet services and IT management.

MERA Networks is one of the biggest Eastern European outsourcing services providers. The company has been on the Russian market for 20 years and currently employs about 1200 software engineers. Its customers include some of the world’s leading telecommunications equipment manufacturers and IT software solutions providers, such as Ericsson and Tiesto.

Another large multinational company operating in the field of outsourcing services for the mobile communications industry is Teleca. The company was established in 1991, under the name Telma. In 2006, Telma Soft was bought by the Swedish Teleca AB. Its Russian branch is currently the leading one in number of employees and completed projects. Teleca works primarily with mobile phone applications and one of its biggest customers is Motorola, for whom they’ve completed over 400 projects.

IT salaries in Nizhniy Novgorod are almost a half of that in Moscow. For example, according to Superjob.ru research conducted last summer, the salary of a Java specialist with at least two years of experience is $1800 net per month. A monthly net salary of a more experienced software developer with solid knowledge of Java may reach $2600 per month.

Nizhny Novgorod is a rapidly developing economic centre. Another one of its attractive features for investments is the fact that it has been selected as one of the four sites in Russia, for building an IT-oriented technological park, which would offer a competitive tax and customs policy. Nizhny Novgorod is also easy to reach from Russia’s capital Moscow. Apart from direct roads, there is also an express railway service, which connects the two cities in 5 hours. Nizhny Novgorod’s airport, Strigino, links the city to major Russian cities. German Lufthansa operates flights from Nizhny Novgorod, connecting the city to Frankfurt and other major German cities.

Scouting Emerging Markets : Mongolia

Diesel, Dust And Dreams : The Triple D New Frontier Markets 

Things do not seem very joyful on many fronts: crisis of the European Union, budgetary and monetary madness in the United States and problems of debt which threaten Japan - to name only three. For many investors who concentrate only on these markets, the morning waking must be difficult. But the world changes. The dominance of Western markets (including Japan) is no more what it was. They are losing  of their importance as the time passes and as the rest of the world catches them.

Scouting Opportunities : Which countries ?

Most people, when they think about investing in emerging markets or when they think about markets outside of the U.S. at all, they probably think first of the so called BRICS – Brazil, Russia, India and China. 

We would say that most of the more remarkable markets we have identified were not in that category. 

In South America we would prefer Columbia, looking how developed and safe that had become. As someone who had grown up in the ’80s, back then Medellin was Pablo Escobar’s hometown, and now you can go there and it’s a perfectly safe place, and again fairly developed. As we favor Chile and Peru over Brazil that is much less appealing. Brazil is a market that I think a lot of investors generally have a favorable opinion of as a place that will bloom and continue to bloom, but a lot of investors don’t appreciate how difficult it is to do business in Brazil. 

You can look at the “ease of doing business” rankings compiled by the World Bank every year, and Brazil scores very low. It’s easier to do business in Rwanda or Pakistan according to those rankings. That’s not to say that, over the long haul, there won’t be interesting ideas from there, but that was one market that surprised me because it wasn’t what I expected it to be, in a bad way.

We are positive on Cambodia  over India, and prefer Mongolia over China. Exploring these different markets, you find some markets that are not so much in the limelight that are appealing. Another market that I really like now is Mongolia, which is a market that certainly is on no one’s radar, but is really coming on fast and growing 50% this year.  

Below is the story of our HK partner's trip to Mongolia :
by Isaac Schwartz

Mongolia : Diesel, Dust And Dreams

Ah, I love the smell of a bull market in the morning. It’s that mix of diesel, dust and dreams that gets you going!

I’ve spent nine days in Ulaanbaatar, Mongolia. I’ve met with three of the four largest banks here, the largest beverage company, the largest cement company, the largest broker, three different real estate companies, a really hairy coal company, several investors and even a former member of parliament. I’ve got a stack of meeting notes and reports. My challenge is to digest this pile and make some sense of it all.

I haven’t spent all of my time in UB. Last Sunday, Harris Kupperman (CEO of Mongolia Growth Group), a couple of other investors and I went out to the countryside. About 40 miles from UB is a national park called Terelj. It sits at the southwestern end of the Henti Mountain range, which run northwest into Russia. These are old, weathered mountains and the homeland of Chinggis Khaan.

My focus has been on the city of UB because that’s where all the money pools. But the Mongolian countryside is really beautiful and worth seeing. I have lots of pictures, but none seem to really do it justice. There are stunning rock formations, expansive grasslands, picturesque streams, gentle hills and forests of larch and pine — all under a big blue sky full of white fluffy clouds. We also ran into grazing herds of yak and horses.

Of course, the source of all the new wealth in Mongolia comes not from what’s in UB but what lies under the ground in Mongolia’s open spaces. Mining is the big engine driving the economy today. But the country also has a rich supply of livestock. There are some 32 million livestock animals in Mongolia; about half of them are goats for making cashmere wool.

Mongolia is the world’s second-largest producer of cashmere wool, after China, making up about 28% of the world’s supply. It’s an important business for the million or so people (about 36% of the population) that still live the nomadic life. Cashmere sales brought in $180 million last year.

Mongolia’s livestock is also an important producer of dairy products and meat. Because the growing season is so short — only about 100 days — animal husbandry produces 80% of Mongolia’s agricultural output.

While mining gets all of the attention, there are opportunities in agriculture. Mongolians drink a lot of milk, for instance, but most of it is imported and comes from a powder, incredibly enough. So an opportunity exists to produce fresh milk, and there are companies here investing in milk production.

Anyway, we stopped off to meet with a family that still lives the nomadic lifestyle. Here is a picture of their ger, note the satellite dish and solar panels.

The ger was surprisingly open and airy inside. We sat on a bed, and the lady of the ger prepared us a lunch starting with fried bread and milk tea. Then she cooked a mixture of noodles, potatoes and bits of beef in a pot over a wood fire. It was starchy, greasy and very filling. It was also, frankly, a bit bland. I was looking for some hot sauce.

So Mongolian food is not my thing, but I enjoyed spending the day in the countryside. If I had more time, I would’ve liked to check out one of the secondary cities, like Dalanzadgad in the south near the Gobi and the prime staging city for the great Oyu Tolgoi mine, or wander north into the Hovsgol region, said to be the most beautiful in Mongolia.

I enjoyed the company of my fellow investors as well, as we tried to sort out the opportunities not only in Mongolia, but the world. For what it’s worth, Myanmar was another market that kept coming up in conversation as the next frontier. I think Myanmar will be the big story of Southeast Asia for the next decade.

Harris is a like-minded global traveler and an investor with a keen nose for opportunity. He’s recently been to Kazakhstan, which is often seen as a kind of road map for what could happen in Mongolia in terms of enjoying a similar jump in wealth. He’s also explored parts of eastern and southern Africa. One of his favorites is Namibia. It is, like Mongolia, a country with a small population about to experience a rapid and massive influx of cash (in this case, from offshore oil).

It felt a little surreal to be sitting in Mongolia talking about Namibia, but these kinds of odd connections happen frequently when I travel in the far-flung corners of the world, and Mongolia was no exception. Yesterday, I met with a Mexican who studied for an MBA in Japan and is now running businesses in UB and in Myanmar.

There is opportunity everywhere really, if only you look.

Germany - Greece: We Watched The Game Before Everybody

The collapse of the euro zone is a main source or worry, more than the elimination of the Greek team by the Mannschaft in the Championship of Europe ? We played the game!

You may know, Germany meeting Greece team in the quarterfinals of the football Euro this Friday. If the Germany wins, one will say that the best has won and that the Greece has already made it good in qualifying for the quarterfinals. If the Greece prevails, one will celebrate the debtor nation which might may repeat the coup of 2004. This is for football. Except that a more important match has already started since 2009, and is being played in the economic field. 

At Investlogic we give you the keys.

Coaches:

Angela Merkel: German Chancellor is a unconditional of the Catenaccio. Her economic policy is governed by the moderation and caution.

Georges Papandreou: He is the Prime Minister of the Greece for most of the match from October 2009 to November 2011. Often disputed by his opponents as by his compatriots, he might one day be rehabilitated as the man who dared to do the dirty work.

Loukas Papadimos: The successor to Papandreou was Governor of the Greek Central Bank between 1994 and 2002. As such, he participated in the rigging of the accounts of his country.

Warm-up Time:

Heating starts between 2000 and 2008 and looks like the fable of the Cigal and the Ant. At that time, borrowing rates were very low in Europe. Countries can go into debt at low cost. Good news for the Greece (but also the Spain, the Italy, the France...) which does not fail to use the loans to import products and boost its economy. It is also very good news for the Germany. Not only the country resorted to borrowing at low rates, but increasingly it takes advantage of this trend with its economy heavily oriented towards exports. This prosperous period causes a large increase in wages across Europe. But ONE country decides to block the increase within its borders: the Germany. The difference in competitiveness hence is widening for the Germany, which exports more while others import more.

Key moments of the game

Kick-off:

The crisis is seriously evil cycle governing the functioning of the eurozone during the warm-up. The axe falls on October 4, 2009. When he won the legislative elections, Georges Papandreou, Greek Socialist Party leader, revealed that the previous Government has made up the public accounts with the help of the bank Goldman Sachs. The deficit amounts to 12% of GDP, twice more announced previously. The markets believe more in the capacity of the Greece to repay its loans. This is the beginning of the match.

First quarter of the game

The Germany first refuses to help at the Greece. In full transition to political vacuum, Chancellor Angela Merkel opposed strongly. Of tackling assassins, worthy of a Cyril Rool, Swish: "Athens must solve its problems alone," balance Merkel, soon followed by liberal MP Frank Schaffler which casts her: "It does not help an alcoholic by giving him a new bottle of brandy still.". The German Minister of Economy hit the blow by announcing that his Government will not pay "a penny" for Greece.

32nd minute: 1-0 for the Greece

Coup de theatre following Sunday.  On April 11, 2010, the European Union agrees finally on a plan of 30 billion euros, at the Greek request and despite the reluctance of the Germany. Two weeks later, the assistance plan is even widely revised upward. The 135 billion euros. The international monetary fund will put hand in his pocket, never seen before in Europe.

35th minute. Equalization of the Germany

The formalization of the plan, may 7, 2010, recalled that this aid will not be a blank check to the Greece. First the Greece will have to reimburse at a rate of 5%. Then, many counterparties are required. Officials lose their 13th and 14th month salary, already 21% VAT is increased by 2%, the retirement age was repulsed, the budgets of the departments are revised downward... Protests engulfed the country, three people died in the fire of a bank caused by a Molotov cocktail.

Half-time:

The two teams join the locker room on a score of parity. During the break, the game continues out of the arena: agencies degrade the note by the Greece, austerity measures accumulate, the State of health of the population is deteriorating, Greeks strike and demonstrate.

 Early in the second period

In March 2011, new sum game zero between the Greece and its creditors. It engages in pain to accelerate the rigour, and in return Gets the loans interest rates lower, and an extension of their. But very quickly, each becomes aware that it will not be enough.

 First quarter in second half. 2 2

The second half continues on a terrible stock market crisis, in summer 2011. Index falls from day to day, pulled down by banking values. one has to determine in emergency a second aid plan. The Germany offers "a fair sharing of the burden between taxpayers and private investors." By and large, reduce the Greek debt. In Exchange, the creditors will be able to have more control on the fiscal policy of the country. The decision is posted on July 21, 2011.

 60th minute: 3-2 for the Germany

In September, the European threaten Athens not to install the sixth part of the assistance decided in May 2010 plan. Athens is forced to a yet another austerity plan. New reduction of benefits, reduced the number of civil servants, new taxes on real estate.

 70th minute: red card for Papandreou

After a new week of strikes and harsh demonstrations, on 27 October, Europe validates a new plan and a new debt reduction Greek. Prime Minister Georges Papandreou has yet not new as a blessing. Berlin has set very strict aid conditions considered an infringement of the sovereignty of the country. Papandreou proposes to submit this support in a referendum, before renouncing it under pressure from its European neighbours. Disavowed, he resigned and was replaced by Loukas Papadimos.

 80th minute: 4-2

An umpteenth plan of austerity is decided: new increases of tax, falling wages of employees, reduction in the number of employees in the public sector. Lower salaries, reduction in the number of officials, new taxes... The forums empty: in Greece, the young are more tempted by exile.

85th  minute: 5-3

These successive plans do not fill the creditors. "The promises of Greece are not enoughsufficient for us." "They should first implement the parts of the former program of austerity and saving”, said the German Finance Minister Wolfgang Schäuble.

In January and February, the creditors impose new measures on the Greece. On 10 February, the Government accepts new tax increases, a reduction of the minimum wage by 22% and superannuation, new privatization... In this context, the suicide of a 77-year-old man, who is fires a bullet in the head in the central square of Athens says a lot about the State of the country. A new assistance plan, is voted on 21 February.

90th  minute

In both games, the Greeks play with nerves of the public. In a first election, on 6 may, the Conservatives new democracy (pro-austerite) and the coalition of the radical left (Syriza, anti-austerite) are elbow-to-elbow. A second vote is organized on 17 June. New democracy prevails on a wire. Austerity can continue.

Review of the game: 

Greece is lead on score: more austerity plans  than of European aid. She is accused of not implementing all of its reform and Germany threatens its sovereignty. It is impossible  to designate a winner. The crisis will certainly plays additional time.

Emerging Strategy : How to Trade It

 Is Athens Burning?

With no undue modesty, we are rather proud of our investment track record – punters following our advice over the years, as well as a few faithful clients, should be gratified by their performance. Inter alia, we were among the first Western source crazy enough to recommend more recently, Russian and Kazahk bank subs, as well as our Axis-of-evil trades (Belarus, Cuba-serviced, Venezuela PdVSA, and now, cautiously, Argentina).

While we managed a few good trades in Russian small-caps, latterly, we have been increasingly chary of equities as an asset class, preferring emerging market debt .

None of this, of course, has prevented our making a few spectacularly bad calls ...

The issue of the Euro crisis has been sufficiently dissected in the media (W. Munchau has done a very competent job in his FT columns) so we can safely skip over the details. Suffice it to say that – as noted previously –the basic assumption had been that a failure to provide sufficient financial support to prevent a Greek default would trigger a widespread loss of confidence, with financial contagion causing borrowing rates for any European sovereign seen to be potentially distressed to spiral out of control, causing a cascade eventuating in... exactly what we are seeing today.

It seemed so obvious. A few tens of billions of dollars spent early on in the crisis could have forestalled losses ranging into the trillions (though, of course, the opportunity would most likely have been wasted as governments continued their profligate ways). The outcome is still frighteningly uncertain, but we already draw three fundamental conclusions:

• First, while some of the more clueless commentary has focused upon the “democratic deficit”, the problem is precisely the opposite – a “democratic surfeit” if you will. Cutting wages, pensions and social benefits is a sure-fire vote loser; for politicians, to speak painful truths is often enough a career-ending move. Providing financial support to the profligate Greeks creates fury in the German heartland; removing long-cherished job protection and social benefits is deeply undemocratic; an economist or two will always be found to explain why pleasurable measures (ever- increasing stimulus) are to be preferred to unpleasurable ones (austerity). Finally, even the ability to comprehend the potential second- and third-order consequences of a disruptive sovereign event requires a fairly sophisticated understanding of financial markets, something totally lacking in most readers of the tabloid press – whose deeply held opinions are thus nothing more than ignorant prejudice. 

• As noted by Prosperity Capital’s brilliant Liam Halligan (yes, Liam, you were unarguably right about the Euro – and long before it was fashionable to be; but now, most you rant so?) the broad Euro experiment was faulty – monetary union in the absence of hard fiscal convergence could not work. Alas, that was then, and now is now, and there is no way to unwind it without risking totally unforeseeable consequences. Personally, we would much preferred the more diverse Europe we knew as a child – but that too is now history, the Rubicon has been crossed, with only two possible outcomes: either fiscal/political unification or severe economic/political disruption with potentially disastrous consequences. Although we are reticent to make any further predictions regarding the efficacy of the European political process in dealing with financial crises, we would prefer to assume that the system is not fatally broken, and that the sole viable alternative – true fiscal/ economic union, is now ineluctable. Hope dies last!.  

• While most commentary has focussed on the failure of the Euro project, the truth may be quite the opposite. It is not inconceivable that monetary unification was conceived in a secret attempt to force through a “United States of Europe” – in the knowledge that, sooner or later, a crisis would eventuate and, with no way back, Europe would be forced to adopt a federal model implying dilution of sovereignty of the component nation states. Perhaps linguistic unification comes next. Ich bin ein Berliner.

Beware the Bear...

The market currently offers a truly extraordinary opportunity!  There is only one problem–we have absolutely no idea  whether  it  is a buying opportunity or a selling opportunity...

  

All considerations of fundamental risk and value currently pale before the fierce waves of disruption from the macros. With the financial world having shifted entirely to a risk-on/risk-off model, assets are now worth either a great deal more, or a great deal less, than current pricing.

No sentient being is entirely sure what would happen were Greece to exit the Euro; the fact that the Lehmans debacle was not expected to create the degree of havoc that it ultimately did does not necessarily imply that a Grexit would do the same – much of the money that a Greek meltdown would “cost” has already been spent, and we would assume that markets have had time to prepare; that said, these are totally uncharted waters, and T&B would prefer not to see some of our hypotheses tested.

What does look fairly certain is that in the wake of a Greek default, we would see some truly extraordinary buying opportunities in a wide variety of financial instruments, as panicked investors dumped whatever they could for whatever price they can get, only then pausing to figure out what it was that they sold. It would be a wonderful time to have some free cash...

Our baseline scenario remains that some sanity ultimately prevails, and that Merkel abandons her hostility to desperately necessary Euro-wide measures – hopefully in return for the acceptance of some hard fiscal constraints by Germany’s neighbours. In this case, current pricing would seem very attractive, including for some of our favourite debt assets which have traded off with the rest, although far less than would be expected given the violent decrease in risk tolerance elsewhere in financial markets.

Emerging Markets Debt (EMD) has greatly outperformed emerging markets equities – which have once again been hammered by a wave of risk-off. While this relative outperformance is gratifying, caution is called for. Were the situation to deteriorate further – and there is certainly no shortage of tinder – investors would likely be panicked out of their remaining winning positions en masse, leading to a short, sharp sell-off in bond markets.

Given the macro uncertainties, all trading calls should be considered as subject –beware of leverage and keep some powder dry !

Equities

Of the many valuable lessons that investors have learned from the great John Maynard Keynes, perhaps there is none so useful as the admonition that, in the short run, markets are voting machines – in the long run, weighing machines. Over a short time horizon (the only horizon remaining in modern casino markets) what is vital is the perception, which you ignore at your peril.

At Investlogic we remains suspicious of equity markets, given their ability to deviate from their fundamentals for a prolonged period, and their extreme dependence upon sentiment and mood. The recent sell-off in emerging equity markets was almost entirely unrelated to any fundamental economic factors (indeed, such drivers are usually invented ex-post-facto – to explain what has just happened). 

Therefore, if somehow, Greece and the EU find some temporary stability, a powerful rebound can be expected, at least until the next Eurocrisis strikes (apparently, it is unrealistic to hope that European policy makers actually take the proactive measures necessary to deal with the next phase of the crisis, before it eventuates).

Given the increasingly assertive foreign policy stance of the Russian government, we can expect Western press coverage to remain unremittingly negative10 (the Pravda-model of “independent journalism”) and, thus, for Russian equity (but not debt) markets to continue to suffer from the disaffection of foreign investors. This is, of course, largely a self-inflected problem; the solution would be not a craven foreign policy, but rather, for Russia to develop her own pools of domestic long-term, institutional capital, as well as encouraging popular equity ownership, perhaps via another bout of pensions reform.

Whilst recent moves to unify the RTS and Micex exchanges, establishing a single custodian, and improving settlement procedures are all very helpful, further improvements in Russian corporate governance and an end to the constant stream of “surprises” (inter alia, the recent suspensions of Vimpelcom and TNK-BP dividend payments) would be most welcome. Investors in Russia must still expect the unexpected, and while, in almost all cases the story is ultimately resolved with limited or no real damage, event-fatigue ultimately sets in.

Therefore we remain underweight equities – both Russian and non-Russian, with zero exposure to the US and European markets. Of the Russian assets, we continue to have a strong preference for the remaining high-dividend resource stocks. We expect substantial volatility going forward and would prefer to capture cash flows, rather than rely upon hypothetical price appreciation.

Fixed Income

The recent volatility in the wake of the Greek electoral circus probably constitutes a good buying opportunity for unleveraged players. Our fixed income portfolio has again performed very strongly this year, and we reiterate our trading calls; that said, the timing is currently tricky and we would not be in any hurry to increase positioning, keeping leverage to moderate levels given the risk of a European implosion.

Our long-standing Axis-of-Evil trades – in particular PdVSA and Belarus – shot the lights out. Belarus was the best-performing EMD asset this year, with PdVSA a close runner up. At present, we are a bit more nuanced in our strategy; having taken some profits as PdVSA yields dropped towards 10% (reasonably close to fair value) we are cautious of general market sentiment, and the risk of a further short term sell-off in oil. We remain entirely comfortable with the mid-term credit fundamentals, and we would be looking to increase positions in the shorter end of the curve, once some sanity returns to global markets; for now, we see little reason to hurry.

The fundamental story remains unchanged – China is taking an increasingly important role in the Venezuelan economy, and those hoping for a right-wing government to replace Hugo Chavez are likely to be disappointed (if holding PdVSA bonds for the eventuality – best to hit the bid). That said, Chavez has severe, indeed potentially fatal health problems and the plans for a possible succession are by no means clear; there is a very high likelihood of continued Chavismo in one form or another, but with the potential for considerable disruption. We wish him good health and a long life!

-Belarus enjoyed a spectacular recovery as Lukashenko was forced to recognize economic reality – allowing a maxi-devaluation, briefly hiking interest rates as high as 70%, and negotiating a huge financial package from Russia, with sale of the Belarusian oil transmission infrastructure and commitment to further privatisations (by which only Russian buyers are likely to be tempted).

Russia’s gains were facilitated by spectacularly incompetent European “diplomacy” that scored a marvellous own-goal, forcing Lukashenko to abandon his long-standing struggle to maintain equidistance between Russia and Europe. 

A charter member of the Eurasian Customs Union, Belarus should now be seen as a future province of the Russian Federation (indeed, the justification for the separation of Belarus from Russia was never self-evident). In the near term, the danger is that, with the noose loosened, rather than privatizing and maintaining credit restrictions Lukashenko resumes his previous economic mismanagement, throwing increasing quantities of credit at fundamentally non-viable government-owned entities. Even this worst- case scenario simply accelerates the process of economic unification with Russia; the current >11% yield on the bonds is an anomaly, largely attributable to the current risk-off mood in markets.

Ukraine we would handle with great care. During our recent trip to Kiev, we were struck by a macroeconomic policy apparently based more upon hope than upon any rational analysis, with the government intent upon playing for time – although time was very clearly not on its side.

We have said so before, and will say so again – Ukraine is living on expedients, and needs to cut a deal with someone, either the European Union or Russia. Whilst the EU is very attractive to the Westernized denizens of Kiev – it is rather less so to the Russian half of the population. There is another slight problem  while it can offer market access and much inspiring language, the EU currently has no money – for that, one needs to turn to Russia. 

The politics are particularly fraught, but our best guess is that typically incompetent European diplomacy drives Ukraine into the arms of Russia – much as it did Belarus, with the sale of the Ukrainian gas transmission system (a wasting asset, in any event) and, possibly, accession to the Eurasian Customs Union.

That said, Ukraine has performed better than expected in the recent sell-off.

We would not be complete without a recommendation for the USD Eurobonds of Russian private banks, in particular the subordinated debt of Alfa, Bank of Moscow and Promsvyaz, as well as the senior debt of Russian Standard Bank. To this litany, we would add the new issue of Nomos 2019. Although we generally shy away from such long duration, the 11% YTM appears quite compelling.

Given the relatively conservative positioning of Russian retail banks, and the unstinting support of the CBR, they are about the closest we can find to “free money” in this market. Spreads have drifted out in recent weeks due solely to the Greek fiasco, which, of course, has absolutely no fundamental impact upon Russian bank solvency. For those requiring a bit more yield (and excitement) we continue to like selected Kazakh assets – KKB subs, and for those willing to position for the long-term, and to accept illiquidity in return for high yields, the perpetual bonds of ATF, BCCRD and KKB.

Finally, risk-tolerant investors might take advantage of the current market turmoil to position in Argentina, in particular Provincia de Buenos Aires which is yielding almost 25% – largely on the back of investor hysteria following the nationalization of YPF. We might also consider repositioning in the Argentina GDP warrants: currently pricing at about 9, a December 2012 payout of 6.5 cents based upon 2011 growth essentially means that patient investors can acquire a 20-year option on Argentine growth for 2.5 cents (after the coupon), with a theoretical potential payout some twenty times as large. No, markets are not always rational...

When the pundits start to gang up on any given company or country, one can usually assume that some serious mispricings are lurking about. Provincia de Buenos Aires is not for the faint- hearted or the over-leveraged, and considerable volatility can be expected; seen as a high-risk trade with a non-zero default risk, at a yield to mat of 25%, one is getting well paid to assume the risk.

Argentine macroeconomic policy is wildly unorthodox, with in particular the currency control regime becoming increasingly repressive and unmanageable. Like the previous attempts at a neoliberal model the current leftist model may well end badly, but that is almost certainly a problem for the medium term – at present, we see no immediate threat to debt sustainability, and despite all of the dire warnings, the Argentine economy has actually done quite well since its last financial crisis. Furthermore, nationalizing YPF may prove to be one of the several things that the Fernandez government has done right – the majority owner, Spain’s Repsol, was using Argentina’s main oil company as a cash- cow, milking it for very high dividends while underinvesting as oil production cratered.

Oddly enough, after acquiring YPF in a deal sanctioned by Kirchner, Repsol quickly sold 25% of the oil company to Petersen Co, owned by the billionaire Eskenazi family, in a deal in which the Eskenazi received one-quarter of a very valuable asset essentially for free; the entire purchase price was debt-financed, partly by Repsol itself, partly by a consortium of banks. The loans were guaranteed by the shares only, with interest and amortization serviced by the very high dividend flows (~90% of profits) generated by YPF itself... a wondrously attractive deal for the acquirer, though one which begs some fairly obvious questions regarding what was behind the deal.

Currencies

While from a fundamental standpoint, we continue to see the dollar as an accident going somewhere to happen, it is currently favoured by the risk-off trade. Given that we think it only a matter of time before the US either spirals back into recession or engages in further debt monetization, we are trimming our Euro/dollar and Euro/SGD shorts but certainly not going long the Euro. It has been a good trade.

On the other hand, our long-standing short- USD/long RMB is performing rather less well than expected. The Chinese currency is currently treading water; Beijing has shrugged off diplomatic pressure for a faster appreciation, and as the currency trades more freely, it is slightly affected by the same factors which have tanked emerging currencies in general – while the RMB is about 1% off its highs, the Brazilian Real and Rouble are off a good 10% - we would continue to own RMB as a store of value.

There are some great trades lining up as the risk-off pushes currencies away from their fundamental values. At some point, the AUD/NZD will once again become very fashionable as China plays – the BRL will come surging back, as will selected Asian

assets. We would bide our time until there is some clarity as regards the European situation. While we think that the worry about China is misguided, certainly, Greece and the other PIIGS constitute a greater challenge.

Rates – When no Greater Fool is to be Found...

While noting that negative real rates for 10- Year US treasuries (much less paying to lend money to the Swiss or German governments...) were the mother of all bubbles, We would not try t to call a top. At below 1.5%, we must be getting near. Although we would NOT short the bonds outright – panicky markets make widows and orphans – but we think that out-of- the-money option strategies for a blow-out in yields 12-18 months down the road make a great deal of sense.

Happy Trading!