Four key talking points to emerge from last week’s World Economic Forum annual meeting in the Swiss mountain resort...
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1. Why are the markets hysterical because oil is cheap again?
The official name of this year’s Davos conference was The Fourth Industrial Revolution, but the only subject in town, really, was oil. The narrative in the corridors of the World Economic Forum was that the drop in oil prices has hurt stocks and asset prices; sent investors scurrying for protection in places like government bonds; reduced oil-producing countries to crisis; and is causing a wave of bankruptcies in the energy markets and beyond.
Walking around Davos, one might think cheap oil spells the end of humanity.
But wait a second. Simple economic analysis would argue that cheap oil should be reason to celebrate, throw street parties and for stocks to soar, not collapse. Aside from the few countries whose economies depend on exporting oil and gas – and aside from fuel-producing companies and the ancillary companies that support them – everyone else should benefit from the drop.
Oil and gas prices are like a tax on the rest of humanity, and a 60% drop in the cost of that tax is wonderful news. If we take that decrease a little further and pursue it to its end, we arrive at utopia – a world in which the cost of electricity and energy is marginal, a world where desalinating water (a very energy-costly process) and growing food, or moving about, is practically cost-free. So why are market investors beating their breasts and wailing?
Trying to field that embarrassing question, the experts at Davos explained that the problem lies in the rapid pace of the decrease and the wave of losses and debt that could ensue. Behind every energy company that tanks are banks and institutional investors, they pointed out.
That sounds reasonable, but in fact this answer exposes the true reality. The drop in oil prices is the problem of the people at Davos, the 0.01% – the bankers and oil company CEOs, the rich investors and hedge fund managers who are the majority at Davos, if nowhere else. Since this group dictates the tone of the public debate (by talking on TV, for instance), the rest of the world gains the impression that the drop in oil prices is a problem.
To sum up: The drop in oil prices is bad for the people at Davos, and the people at Davos have access to the newspapers and TV networks covering them – therefore they make the story sound like a crisis. But it’s actually good news for almost everybody else around the world.
2. That marketing man, Benjamin Netanyahu
Prime Minister Benjamin Netanyahu came to Davos again this year. What did he accomplish? Netanyahu talked about cyber security and high-tech, and how strong Israel is in these areas; he held diplomatic discussions and met with CEOs of leading high-tech companies. Okay. But that agenda shows the true degree to which Big Money and Big Government share interests, and the degree to which meetings like Davos demonstrate as much.
When talking about cyber crime, Netanyahu is trying to impose a sort of tax on the entire world by frightening them about hackers doing awful things to their computers, so they need to buy Israeli protective products. At Davos, Netanyahu is a marketing man for cyber products that people would love not to have. Israel’s great at it, and Israel could benefit from selling cyber startups to big global tech companies. That’s okay, because we Israelis benefit from that. But it’s no different from high-priced oil tax – every cyber defense system is a cost, or tax, on business and, therefore, it’s a tax on the global population. In the case of oil, the main beneficiary is Saudi Arabia. In the case of cyber security, it’s Israel. Saudi representatives came to Davos to shore up the price of oil, while Netanyahu came to push cyber products.
He also met with Travis Kalanick, founder and CEO of global ride-hailing firm Uber, and with Hewlett Packard CEO Meg Whitman. That’s Big Money-Big Government unadulterated. Uber has been dying to get the Israeli Transportation and Road Safety Ministry’s approval to offer its services in Israel, mainly the one allowing drivers to share their private cars; Transportation Minister Yisrael Katz, however, has been subservient to Israeli cabdrivers and hasn’t been helpful to Uber. Could Netanyahu’s chat with Kalanick pave Uber’s entry into Israel? Will his talk with Whitman affect the amount of tax HP pays in Israel?
In Kalanick’s case, the meeting with Netanyahu could benefit the general public – which is the opposite of many, if not most, meetings between Big Money and Big Government. They usually end with the public paying while the rich get richer – and those are just the meetings we know about.
Any other conversations and meetings the prime minister might have had in Davos didn’t appear on his official agenda.
3. Steve Schwarzman, Ray Dalio and the hedge funds crew
As last week rolled to a close and financial assets (other than government bonds) took a beating, the hedge fund managers clustering at Davos became hot stuff. Everybody wanted to know what they thought, and what they think will happen. They sprung no surprises and, as always, spoke with their own interests at heart.
Ray Dalio, founder of Bridgewater, one of the biggest hedge funds in the world, said the drops in the market reflected global economies and, therefore, Washington needs to resume monetary expansion. It should print money. Blackstone CEO Steve Schwarzman, meanwhile, said he failed to understand the dissatisfaction that led some Americans to support a social democrat like Bernie Sanders.
Why self-interested? Because the main thing a person like Dalio cares about is how much money his fund manages, and how much he can charge it in management fees. A statement like that, therefore, isn’t just cold economic analysis: it is pressure on Washington to do everything in its power to reinflate asset prices, which will also increase the fees an investment manager like Dalio can charge.
The reactions by Dalio and Schwarzman demonstrate the perception of the 0.01% who meet in Davos. They don’t understand what people are in a flap about; and they do understand exactly how to make governments preserve asset values and their income.
Ultimately, that’s the main reason they came at all to this snowbound little town in the Alps, where the temperature at noon is -5 degrees Celsius.
4. The pope and the technological revolution
If there’s one person who has understood, with startling clarity, what motivates world leaders and the 0.01%, it’s none other than Pope Francis. As expected, he called on world leaders and the rich and powerful not to leave the weak behind and to tackle inequality. He also took aim at a new target: the decision makers who take it for granted that the main result of the digital revolution will be less jobs and employment. They feel it’s irreversible.
He’s right. That outcome would be very convenient for the people at Davos, who like replacing people and unions with computers and robots. They can replace labor with cheap money. It is in their interest to show that this cannot be stopped, that it’s an act of God. And who called them out on it? The pope.