MacroScope

Five days on, Ukraine accord at risk of unravelling

An international agreement to avert wider conflict in Ukraine, brokered only five days ago, is teetering with pro-Moscow separatist gunmen showing no sign of surrendering government buildings and Kiev and Moscow trading accusations over who was responsible for killings over the weekend.

Washington, which signed last week’s accord in Geneva along with Moscow, Kiev and the European Union, said it would decide “in days” on additional sanctions if Russia does not take steps to implement the agreement. U.S. Vice President Joe Biden is in Kiev where he is expected to announce a package of technical assistance.

So far, markets’ worst fears have not materialized but with thousand of Russian troops massed on the frontier with Ukraine and deadly clashes between Ukrainian forces and pro-Russian separatists, it would not take much to change that.

The European Commission handed documents to EU member states last week explaining the potential impact on their economies of imposing stricter trade and financial sanctions on Russia. There is talk of an emergency meeting of EU leaders if necessary but building a consensus on tougher measures is tricky in Europe where many countries rely on Russian energy exports.

Polish Prime Minister Donald Tusk has written in the FT, calling on the EU to create an energy union to secure its gas supply because the current dependence on Russian energy makes Europe weak.

Firing up Brazil’s economy

A hot, dry spell in southeastern Brazil has pushed up energy prices, stretched government finances and raised the threat of water rationing in its largest city, Sao Paulo, just months before it hosts one of the world’s largest sport events, the soccer World Cup.

It looks like the last thing Brazil needed as it scrambles to woo investors and avoid a credit downgrade.

But if the scattered rains that started to pour down over the past few days bring in continued relief through March, the heat could actually prove to be a much-needed boost for Brazil’s economy, research firm LCA found.

Dr. Doom goes to Beverly Hills

When it comes to predicting a dark future, Nouriel Roubini – the NYU economist who earned the moniker Dr. Doom after he correctly predicted the financial crisis – is not about to let anyone get in his way.

Even if it’s his host. And even, or maybe especially, when there are 500 witnesses.

That’s precisely what happened Wednesday morning, when Michael Milken – the former junk-bond king – shared the stage with Roubini at Milken’s Global Conference. What was billed as an interview in one of the Beverly Hilton’s grand ballrooms had the feel of a pitched battle.

What’s behind the spike in oil prices?

It’s easy to blame tensions with Iran for all of the recent spike in petroleum prices. But there are other catalysts for the market’s sudden surge. For one thing, U.S. economic data have been consistently surprising to the upside while the European situation appears loosely under control, both factors that suggest the global economy may yet coast along through 2012 without faltering.

Then there are the actual hits to supply taken due to geopolitical events around the world, says Marc Chandler at Brown Brothers Harriman, which in just two months have helped push Brent crude prices more than $20 higher to a 10-month high above $125 a barrel:

There has been a genuine supply shock. Between Sudan, Yemen and Syria, nearly 750k barrels per day (bpd) have been taken out of production due to political instability. On top of this Libyan oil output is about 600k bpd below pre-civil war levels.

from Summit Notebook:

Is emerging Europe out of the woods yet?

A surge in portfolio inflows is flooding into emerging central Europe, although yield-hungry investors are picking solid HUNGARY IMF/MATOLCSYpolicy and higher growth over countries still struggling to put the crisis behind them.

After deep contractions across the region, a two-speed recovery is underway, with countries boasting better debt fundamentals like Poland and the Czech Republic for the moment ahead of those who depend on foreign lending.

Investors are also dipping into countries like Hungary, but struggles by the new centre-right Fidesz government to get its budget deficit under control mean it is lagging for now, along with fellow International Monetary Fund benefactor Romania.

Transforming the FIRE Economy

What went wrong and where we should go are topical post-crisis discussions and many books have been dedicated to tackle this question.

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Eric Janszen, U.S.-based economic analyst, is the latest in analysing the crisis and its aftermath. He thinks that the problems of the global economy are rooted in the flaws of the debt-driven FIRE Economy (Finance, Insurance and Real Estate) and the only way out of the crisis is to change the fundamental approach.

“The entire economic system has been glued together by one profound fantasy: Finance can substitute for production, and credit for savings. Private debt, of households and businesses, and public debt, of governments federal, state, and local, foreign and domestic, piled up like snow by a blizzard of lending through mortgages, bonds offerings, and securitizations over decades. It then avalanched upon us,” Janszen wrote in his new book.

More than green shoots

MacroScope is pleased to post the following from guest blogger Stewart Armer. Stewart is head of socially responsible investing at Fortis Investments. He outlines here how huge stimulus plans could boost sustainable economic development. His team blogs on this issue at SRI Blog.

While we are still debating if the worst is over, it has become clear that economic crisis has turned into an opportunity for sustainable economic development.

Our recent analysis of the fiscal stimulus packages of G-20 countries shows that almost half of the announced spending will be spent on the environment and social sectors.  The major recipients include healthcare ($333 billion), sustainable transport ($209 billion), education ($151 billion), social housing ($95 billion), clean and efficient energy ($84 billion), and clean water and air ($68 billion).

from Global Investing:

The final frontier market

As a fallout in emerging markets -- once hailed as a safe-haven from the global financial crisis -- gathers pace, asset managers are scrambling for newer markets.

What about North Korea? The Stalinist country boasts large untapped natural resources with deposits of gold, coal, zinc and other minerals. It has virtually no capital markets and its banks are all state-owned -- making it a true safe haven from the global financial crisis.

The communist state has a good logistics route. It has borders with China, Russia and of course South Korea and a short sea route to Japan. South Korean firms such as Hyundai and LG already invest in the North.