Lord Rothschild warns dark clouds are gathering in Europe, Russia, ME

Lord Rothschild characterized the geopolitical situation in the world as the most dangerous since the end of WWII, warning investors about a forthcoming crisis

Lord Rothschild has warned about the dark cloud on the horizon for the global economy, characterizing the geopolitical situation as the most dangerous since the end of World War II.

“We are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union,” wrote Jacob Rothschild, a British investment banker and a member of the prominent Rothschild family, in an annual Strategic Report of RIT Capital Partners plc (RIT).

RIT is an investment trust that has been investing “in a widely diversified, international portfolio” delivering high returns to shareholders since 1988.

According to the company’s website, RIT has more than doubled its net asset value per share and share price over the past ten years.

Although Rothschild’s RIT can currently boast the highest level of its share price, not everything is rosy in the garden for the global economy, emphasized Lord Rothschild: “The world economy grew at a disappointing and uneven rate in 2014 after six years of monetary stimulus and extraordinarily low interest rates.”

Furthermore, the value of paper money has reduced substantially, as countries were trying to generate growth by lowering the value of their currencies, particularly the Euro and the Yen, which have lost over 12 percent against the US Dollar during the last year. The undesirable consequences of such monetary experiments are hard to predict, noted Lord Rothschild.

It seems that Rothschild’s concerns are shared by the EU member states as well: at the end of 2014 several European countries demonstrated a revived interest in gold as a monetary policy instrument and focused on repatriating their bullion gold reserves from abroad, citing issues of economic stagnation and an unprecedented level of money printing in the world.

However, Jacob Rothschild underscored that the majority of companies are reporting profits exceeding forecasts together with steady earnings growth.

The banker believes that “the combination of a more competitive Euro and an aggressive program of quantitative easing and the yields available on equities, may well lead to even higher valuations.”

Source: Sputnik News

The modern economy depends on 60+ obscure metals

Mining coltan
Mining coltan

Over half a century ago, the global economy largely depended on just ten or so different materials. Most important products were made out of wood, brick, iron, copper, gold, silver or a few plastics — and that was about it.

Things are wildly different today. A huge chunk of modern-day technology, from hybrid cars to iPhones to flat-screen TVs to radiation screens, use dozens of different metals and alloys. A computer chip typically involves more than 60 different elements that are specifically selected to optimize performance, like europium or dysprosium.

And that’s long raised a concern: What would happen if we run short of any of these valuable metals? Say there’s a war. Or unrest in a crucial mining region. Or China decides to lock up its strontium deposits. Could we easily come up with substitutes? Or is modern society vulnerable to a materials shortage?

Here’s the case for vulnerability: A fascinating recent paper in The Proceedings of the National Academies of Science looks at 62 different metals that are widely used in modern-day industry. For a dozen metals, potential substitutes are either inadequate or flat-out unavailable. And there are no “excellent” substitutes for any of the 62 metals. A shortage of any of them could do some damage.

Read more.

The network that runs the world

Science may have confirmed our worst fears. An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.

The study’s assumptions have attracted some criticism, but complex systems analysts contacted by New Scientist say it is a unique effort to untangle control in the global economy. Pushing the analysis further, they say, could help to identify ways of making transnational corporations more stable.

The idea that a few bankers control a large chunk of the global economy might not seem like news to many. But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have found that a few TNCs own large chunks of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy – whether it made it more or less stable, for instance.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.

When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.

John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.

Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable. “If one [company] suffers distress,” says Glattfelder, “this propagates.”

“It’s disconcerting to see how connected things really are,” agrees George Sugihara of the Scripps Institution of Oceanography in La Jolla, California, a complex systems expert who has advised Deutsche Bank.

Yaneer Bar-Yam, head of the New England Complex Systems Institute (NECSI), warns that the analysis assumes ownership equates to control, which is not always true. Most company shares are held by fund managers who may or may not control what the companies they part-own actually do. The impact of this on the system’s behaviour, he says, requires more analysis.

Crucially, by identifying the architecture of global economic power, the analysis could help make it more stable. By finding the vulnerable aspects of the system, economists can suggest measures to prevent future collapses spreading through the entire economy. Glattfelder says we may need global anti-trust rules, which now exist only at national level, to limit over-connection among TNCs. Sugihara says the analysis suggests one possible solution: firms should be taxed for excess interconnectivity to discourage this risk.

One thing won’t chime with some of the protesters’ claims: the super-entity is unlikely to be the intentional result of a conspiracy to rule the world. “Such structures are common in nature,” says Sugihara.

Newcomers to any network connect preferentially to highly connected members. TNCs buy shares in each other for business reasons, not for world domination. If connectedness clusters, so does wealth, says Dan Braha of NECSI: in similar models, money flows towards the most highly connected members. The Zurich study, says Sugihara, “is strong evidence that simple rules governing TNCs give rise spontaneously to highly connected groups”. Or as Braha puts it: “The Occupy Wall Street claim that 1 per cent of people have most of the wealth reflects a logical phase of the self-organising economy.”

So, the super-entity may not result from conspiracy. The real question, says the Zurich team, is whether it can exert concerted political power. Driffill feels 147 is too many to sustain collusion. Braha suspects they will compete in the market but act together on common interests. Resisting changes to the network structure may be one such common interest.

When this article was first posted, the comment in the final sentence of the paragraph beginning “Crucially, by identifying the architecture of global economic power…” was misattributed.

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

The New Scientist