Wednesday, December 17, 2008

The joys of deflation

Last year at this time, I was all bent-out-of-shape on inflation.

This holiday season, however, deflation is the new black. But don't worry, you'll see a rise in real income so even this storm has a silver lining... apparently

I'm still nervous.

Friday, November 21, 2008

Canada escapes recession?

I dunno... sounds liek the old (now defunked) decoupling theory to me.

Here's the logic:
The logic behind Desnoyers's logic is this: Export income in Canada will be cut by the U.S. downturn and a big drop in prices for Canada's resource products.

That's why we're entering a slowdown.

But to have a severe slump with soaring unemployment, we'd also need a swoon in domestic spending by consumers, businesses and governments.

That's not happening.

Domestic demand, which makes up three-quarters or more of Canadian economic activity, is on track to keep growing, thanks to a central bank that has already slashed interest rates and stands ready to cut even more.



OK, but how are we going to fund that three-quarters domestic consumption if there is a drop in demand for Canadian exports, namely our rocks and trees? Please don't tell me we're going to fund this consumption through added debt.


Why Canada looks likely to escape severe recession

Monday, September 29, 2008

Dani Rodrik's weblog: How to invest in Africa, really quickly

Interesting how different ideas around development are coming to the fore. Here is another DIY microfinance through the Center of International Development at Harvard. Actually, I'm more interested in hearing about their plans for the "Empowerment Lab".

Dani Rodrik's weblog: How to invest in Africa, really quickly

Sunday, September 14, 2008

Canada didn't invest, so now it must pay

Sadly, Canada didn't use the recent good times in commodities to invest in other industries and further diversify its economy. The country remained stuck in its rut of relying on exporting rocks and trees for economic growth. Well, with the global slow-down happening, I'm afraid that party is over (or at least feeling super gross with a wicked hangover).

Canada could have taken its surpluses, its stronger currency and its commodities revenues to make some strategic investments. But it passed on that opportunity and now maybe future opportunities will pass on Canada.

ViewsWire

Monday, August 04, 2008

Entrepreneurship | Spreading the gospel | Economist.com

Another example of using entrepreneurship and market forces as tools for global development.

I highlight this example and examples such as Digicel not to discredit more traditional forms of development (although those models could use a re-working), but to illustrate that developments needs a portfolio approach.

There is no one model (for-profit or non-profit) that can help raise people out of poverty. Rather it takes the efforts of many different organizations, with different goals and motivations to really raise the lot of the global poor. For too long perhaps we have focused on the non-profit model and it is now clear that some of the most exciting thinking is coming out of the for-profit world.

From anti-globalist to globalist cheerleader

I wrote earlier that Brazil's economy has improved because of its anti-globalist nature... meaning that much of Brazil's growth has been powered by its relatively insular market and strong internal consumption.

That may be true of the past, but Brazil needs a strong globalized system in order to grow in the future.

But Brazil’s ethanol-fueled economy may have hit a rough patch. The country’s stock market went into bear territory this week, falling 20 percent from its recent high. The collapse of the Doha world trade round has put the brakes on Brazil becoming a major exporter of agricultural products to the United States market. Meanwhile, a drop in oil and metal prices could send the country’s economy into a tailspin.

Can Brazilian M&A Stay Hot?

All this probably explains why Lula is so keen to restart the failed Doha talks.

Thursday, July 31, 2008

Brazil: The anti-globalist?

NYTimes has a profile on Brazil today. Probably the most interesting part of the story is about Brazil's self-sufficiency.

Here's the money quote:
“What makes Brazil more resilient is that the rest of the world matters less,” said Don Hanna, the head of emerging market economics at Citibank.

As I've looked at Brazil that has been the one thing that has impressed me the most. The country really has been able to build and grow domestic industries and feed its own growth through internal consumption.

Of course, Brazil hasn't had the GDP growth numbers that other large, more "globalized" emerging markets have demonstrated; Brazil's GDP growth has been in the 4-5% range vs. India's 7% range and China's +9-10% range.

But what it lacks in GDP growth, it makes up in resiliency. It is still a tough story to tell because despite the great social advances as of late in Brazil, it is hard to see how 5% growth will really make a dent in the huge social inequalities in the country.

Tuesday, July 29, 2008

Barefisted development

Great story on Digicel, a company that has a very barefisted approach to development and market creation. They (apparently) go into a country, develop their infrastructure and sell mobile phones to the masses, all before the government knows what is going on. The gamble is that when people get their mobiles, they are not willing to give them up without a fight.

Fun business model, but it is perhaps not for the faint at heart.

Babble Rouser - Forbes.com

Monday, July 28, 2008

Telecoms in Mexico

More competition is needed in the telecoms market in Mexico.

Telecoms in Mexico | Slim’s pickings | Economist.com

Adding the "World" in worldwide web

It is clich├ęd by now to say that as soon as your company is on the web, it is global. But that is not so as witnessed by the experiences of some major web companies.

The globalization paradox that I love talking about is that in order to be global, you really need to be intensely local. Big web companies are realizing this are starting to localize their offering and event their trademarked look and feel.

Here's a great money quote:
"Creating a national company is like rocket science," said John Strand of Strand Consulting in Denmark. "But creating an international company is like proton physics."



An un-American feel aids expanding US Web firms - Yahoo! News

Tuesday, July 15, 2008

Forget growth, forget inflation. The main concern...???

...plain old stability!

I remember the days of "don't worry, it'll be a mild recession" talk of a few months back. Now we're looking down the wrong end of a full on financial crisis.

I'm glad some people still have a "don't worry be happy now is the time to buy attitude" but I remain unconvinced. I thought that a few weeks ago and now feel duly chastened.

I'm not panicking or doing anything rash.

But I'm not happy either.

Monday, July 07, 2008

Quietly, Brazil Eclipses an Ally - NYTimes.com

Interesting look at Brazil's rise to become a regional (and global) power.

Quietly, Brazil Eclipses an Ally - NYTimes.com

Why the US auto industry is sinking....

... in a word "innovation" or lack thereof.

Great article in today's NYTimes "Asleep at the spigot" on how US automakers and unions blustered and lobbied politicians and did anything but the right thing, innovate and make cars for the future. Now they are paying the price and are a great cautionary tale for other industries that may become complacent and lazy.

That’s the great thing about economics and markets, eventually it'll trump any sort of backward ideology. For some reason, US carmakers and their supporters thought it was a right to make and sell backward-thinking behemoths, regardless of what was happening in global oil markets. They didn't pay attention to where the auto and fuel markets were going and are now far behind more intelligent competitors that understood the market for how it really is, not for how they can manipulate politicians to say it should be.

Wednesday, July 02, 2008

"As the auto industry goes...

... so goes the US economy."

At least according to the old saying.



Geez, I hope not!

Friday, June 27, 2008

Catching up with moral hazard

In the U.S., we recently saw the unprecedented opening of the Federal Reserve discount window to nonbanks. By definition, unprecedented events set a precedent. And regardless of whether that window is officially opened or closed, the market now assumes that it will be open if necessary on an ad hoc basis.

Interesting OpEd in today's WSJ from Vikram Pandit of Citigroup. As he highlights, the moral hazard has already been established, the Fed will bail out failing institutions that threaten the entire financial system. We now need regulations to manage that moral hazard.

Toward a Transparent Financial System - WSJ.com

Wednesday, June 18, 2008

The economic future of my daughter: pt i

With the birth of my daughter, as well as with all the crazy news in the market as of late (oil prices, subprime blah blah, inflation and so on) I’ve been thinking about what sort of economy my daughter will grow up with. I’m 36, which is pretty much the same age my dad was when he had me. So here are some thoughts on what economic forces will be bearing down on my daughter when she is 36.

Her diet will be different: Meat and animal products will continue to get more expensive as feed prices continue to rise. The price of feed/meat won’t be a direct straight-line to the upper right, but the inexorable trend will be in that direction. The result is that meat and animal products will continue to become more of a luxury. There may be meat substitutions, which will be entirely synthetic meat that is manufactured in a lab somewhere.

Transportation will be reduced: People simply won’t travel as much. Oil prices will rise at a rate faster than our ability to replace oil as the basis for our fuel. This will result in changes in our behavior and the increased use of substitution technologies.

Increased urbanization: One behavioral change will be an increased migration back to the city. The economic of travel will force us to live closer to work and amenities. She won’t be driving to the store as much as she’ll be walking to it, perhaps on her way back from work. That downside is she may not travel as much for pleasure, but there may be some solutions for that.

Substitutions technologies: Things like holograms and advanced video conferencing will step out of the pages of scifi novels and become a practical reality for my daughter. She’ll be telecommuting to work probably more often than actually commuting. Such technologies will also begin to shape her social life as well as she may have some friends who she may never actually meet in person, and she may visit some locations without ever leaving her livingroom.

I’ve got a lot more on this subject… more to come.

Wednesday, June 11, 2008

Hoping for higher rates

So here's my call.. I'd love to see interest rates begin to creep up, it would add some stability to the US markets. Higher rates would send a signal to the market that the fed is serious about shoring up the dollar and tackling any hint of inflation (well, it is more than a hint now).

So higher rates would mean strong dollar, curb in oil prices and a reduction in inflation expectations. All those things would be a huge help.

Don't think it would impact consumer lending right now because how much of it is now going on? Would hurt an already wounded housing market, though.

Has Danger to U.S. Economy 'Diminished'? : NPR

Tuesday, June 03, 2008

UK and the Euro

I'm not posting this because I want to advocate the UK joining the Euro (even though I think it is a good idea... hell, I think Canada should join it as well but that is another story.)

I'm posting this because of this factoid:

Only the US and the euro area have serious global reserve currencies, with about 63 per cent and 27 per cent of the global stock of reserves respectively.

There are a lot more global reserves in Euros than I had thought. Interesting.

FT.com / Comment & analysis / FT Columnists - There is no excuse for Britain not to join euro

Monday, June 02, 2008

Brazil after the upgrade

Good Q&A... my main take-aways:

1) Brazil needs to invest more in human capital
2) Brazil needs to invest more in productivity (which means IT investment in my world)
3) Strong Real may mean more global investments for Brazilian companies
4) Brazil has had a strong bull market this year (draw your own conclusions... are you feeling lucky)

Me, I invested in EWZ a long time ago and has been by FAR the smartest (or luckiest) financial decision I've ever made.




FT.com / Markets / Ask the expert - Brazil after the upgrade

When Shakira Calls, Even the Shy Appear - New York Times

The rise of PPP-- new private, public and pop-star partnerships in LatAm.

When Shakira Calls, Even the Shy Appear - New York Times

The World Is Upside Down

NAN, that's a new acronym for me. It means (apparently) newly acquisitive nations and refers to companies from Brazil, Mexico, India and China going on a global buying spree usually snatching up US or European (or Canadian) assets.)

A lot of the action is in commodities, oil and gas, and manufacturing. Those markets are where all the money is currently flowing (well, maybe not manufacturing) so it is not surprising.

The most interesting story mentioned here Grupo Mexico battling with Vedanta Resources for Asarco; a Mexican company fighting with an Indian company to buy an American copper company.

With China being an increasingly larger consumer of commodities, the battle over American assets won't be to better serve the American market, but to make more of an in-road in the Chinese one.

Some may be inclined to think this represents the end of the US market as the world's most influential one, I don't think I would agree with that proposition. However, it does indicate that we are entering an increasingly multipolar era where global companies and "must-win" markets originate from every corner of the globe.



Op-Ed Columnist - The World Is Upside Down - Op-Ed - NYTimes.com

What Microloans Miss: Financial Page: The New Yorker

The problem is a dearth not just of lenders but also of people willing to buy an ownership stake in companies, like the angel investors and venture capitalists that American entrepreneurs often rely on.

This has been a theme in some of the recent literature on development, that a more VC approach needs to be taken to promote the founding and expanding of SMBs in emerging countries.

The relationship between lender and SMB is transactional, with the lender only interested in getting back the principle plus interest.

With interests aligned around the success of an enterprise, however, a unique symbiotic relationship forms between owner and manager (when the process works well.) This encourages sharing of resources, contacts and business ideas.


What Microloans Miss: Financial Page: The New Yorker

Thursday, May 29, 2008

7 billion development experts worldwide

The end of the “development expert” paradigm does not mean the end of hope for development. Development is al­ready gradually ending poverty (global poverty rates have fallen by more than half in the past three decades) – not be- cause of development experts such as those who wrote the World Bank Growth Commission report – but thanks to more freedom for more of the 6.7bn individual development experts alive today.

Couldn't agree more.


FT.com / Comment & analysis / Comment - Trust the development experts – all 7bn

Palestinians pin biz hopes on high-tech industry - Yahoo! News

The question of the Middle East is obviously a very complex one, but I have to think that economic development that provides jobs and financial security has to be a good thing. It looks like a number of innovators in both Israel and Palestine agree and are putting money and expertise to help build an indigenous Palestinian IT industry.

Palestinian information technology is still in its infancy with just two dozen software houses, a few thousand engineers and $15 million in exports a year.

I have to admit, these numbers surprised me. I didn't think the Palestinian IT industry was even this big. It looks like a very positive development.


Palestinians pin biz hopes on high-tech industry - Yahoo! News

Wednesday, May 28, 2008

Inflation's march...

... continues. Energy and commodity prices go up, which is now leading to a rise in other material and manufacturing costs.

Dow Chemical hikes prices 20 percent, citing energy - Yahoo! News

Decoupled or diversified?

LatAm equities (specifically Brazil) have had quite a run so far this year but questions are starting to surface if the party's over. Can LatAm markets really be "de-coupled" from the US's? How long can LatAm ride the commodity wave which seems to be lifting the region's equity boats?

Personally, I'm not a huge fan of the decoupling theory, the US is still something like +40% of the global economy so if it tanks, everyone’s going to be impacted. But it is a question of how badly and Brazil in particular is (relatively) better shielded from perturbations in the US, mainly because it can rely somewhat on a huge internal market.

If commodity prices drop, that may have a negative impact on the region as a whole. But I think people aren't aware at how diversified the BOVESPA is. Of the 800 or so companies listed, about 80 are in oil, gas, and basic materials and about another 80 are in construction/transportation. Just by eyeballing the sectors represented, it looks like various financial institutions make up the plurality of listed companies.

Sure, this is a very quick look at the BOVESPA and I'm glossing over a lot of key questions (what percentage of the BOVESPA's value is in the commodity/construction companies? how much do the other companies ultimately rely on the functioning of commodities?) But that said, the BOVESPA is more diversified than many seem to think and that may be contributing to some of its gain and resilience.



FT.com / Columnists / John Authers - The Short View: Latin America

Tuesday, May 27, 2008

Tech.view | The broadband myth | Economist.com

Broadband on its own is obviously not sufficient to improve a nation's productivity. Rather, the critical question is what do you do with broadband?

The US probably has the greatest "creating for the Internet" culture, as opposed to a culture based around "consuming on the Internet".

Japan, Korea, parts of Europe, even in some emerging countries have very sophisticated cultures based around consuming Internet content, but not as much as using the Internet as an innovation tool. Because of that, they do not enjoy the same sort of productivity gains as the US.

Tech.view | The broadband myth | Economist.com

Monday, May 26, 2008

Real Time Economics : Oil Bubble? The Debate Rages

Are oil prices in a bubble? Methinks yes, sorta. I believe much of the problem is fundamentally a demand one, there is too much of it. And as a supporter of the peak-oil theory, I think everything we do on the supply side will be a temporary fix and not really worth the trouble. Indeed it will cause more trouble (climate change) and will hurry the draining of existing oil (new supplies lower prices, increases demand, and consumes whats left of the oil at faster rates.)

So where is the "sorta"? Well, I think some speculation and the low dollar/interest rates have fueled (pardon the pun) some irrational exhuberence. It maybe is not leading up to a dot-com style bubble, but a bubble none-the-less.

Here is my thought on what will pop the bubble: interest rates finally hit bottow and the Fed begins to raise them to combat inflation and support the dollar. That's my call on how the price of oil may drop. We'll see....

Real Time Economics : Oil Bubble? The Debate Rages

New Find Fuels Speculation Brazil Will Be a Power in Oil - WSJ.com

I've read several articles of late on Brazil as an emerging oil power, some even breathlessly saying that the country could displace the Middle East as a major oil supplyer to the US (shame same can't be said at the moment about Brazilian ethanol.)


This line caught my attention:
Some investors aren't waiting to place bets. The publicly traded slice of Petrobras has risen so much this year that the company's market value has surpassed that of household names like General Electric Co. and Microsoft Corp.

So for laughs, I looked up the marketcap of some random large companies. Here are the results for your viewing pleasure:

$ 479.23B Exxon
$ 317.53B Petrobras
$ 303.31B GE
$ 261.24B MSFT
$ 236.19B BP
$ 220.60B WalMart
$ 208.35B Chevron
$ 149.14B Cisco


New Find Fuels Speculation Brazil Will Be a Power in Oil - WSJ.com

Sunday, May 25, 2008

Energy as a demand problem, not a supply one

Very odd article in the NYT today; like many writers, this one has focused on the imperative to alter the way we generate and consume energy. Except here the writer takes a very supply-side look at things and suggests that the only way out of our current situation is to generate more energy, at the expense of everything else. Here’s his conclusion:

BUT most of all, we treat this as a true crisis. As my pal Glenn Beck, the conservative commentator, says, we need a new moon-shot mentality here. We need to turn coal into oil into gasoline, to use nuclear power wherever we can, and to brush aside the concerns of the beautiful people who live on coastal pastures (like me). And we need to drill on the continental shelf, even near where movie stars live. This must be done, on an emergency basis. If we keep acting as if the landscape were more important than human life, we will make ourselves the serfs of the oil producers and eventually reduce our country to poverty and anarchy.

In that long message sent to Congress 35 years ago, there was an outline of what we needed to do on coal-to-oil and shale-to-oil, as well as wind, solar and wave power. For a generation plus, we have done next to nothing. The hour is late. The clock of destiny is ticking out, as the Rev. Dr. Martin Luther King Jr. said. Let’s roll.


So here are my thoughts:

1) Yes, we are in a crisis

2) Agree, need a “moon-shot” mentality to address the issue. Others have been saying this for years, if not decades, but I’m glad that Glenn Beck (whoever that is) is on board.

3) Sure, we need to find new sources of energy and no good idea should cast aside. But I find it hard to believe that all good ideas mean necessarily destroying the environment around us. The various dichotomies of “economy vs. the environment” or “human life vs. landscape” are entirely false and are the basis of the “do-nothing” attitude that the writer seems to be against.

The writer tries to trivialize concern over our natural environment by saying that only those concerned are “beautiful people” or “movie stars.” These are the meaningless arguments of people who look at the energy crisis as a supply problem rather than a demand one. By looking at the problem from a demand perspective, we can take steps to reduce our consumption of energy and thereby lowering the price of oil and not destroying everything else around us.

Sure this will take a long time, but last I checked getting an oil-field up and running takes a few years as well. Beside, if we destroy landscapes in search of energy, and then we tap-out that new energy source because demand has not been curbed, what will we be left with. (Indeed, new energy sources will probably increase demand because it will bring prices down and eliminate any incentive to conserve, so we will use up energy and destroy our landscapes and an increasing rate. I don’t see how this in any way benefits human life.)

4) Earlier in the article, the writer makes reference to the gas-war anarchy of the “Mad Max” movies, hence his comment “and eventually reduce our country to poverty and anarchy.” I hate paying +$4 at the pump and I hate that my way of life is dependant on doing so (but I, like other thoughtful people, are seeking substitutes), but I don’t see this leading our country to anything close to resembling poverty and anarchy. I see it resulting in innovation and new technologies. Current economics is giving way to a rise in alternative energies and new ways of using energy more efficiently. Sure, it is a messy process (see my notes on ethanol) but the market works, and I don’t see anarchy anywhere on the horizon.

The aritcle is called "Running Out of Fuel, but Not Out of Ideas". The writer hasn't come up with any new ideas of his own, but at least has tried to be somewhat environmental by recycling old ideas, even if they are tired and discredited.

I’m kinda amazed this weak article got past NYT editors.


Everybody’s Business - Running Out of Fuel, but Not Out of Ideas - NYTimes.com

Ethanol and fundamental economics

The fact is, there is very little argument in favor of corn-based ethanol; it is expensive, its is energy consumer and, most damaging, it is not economic. I am all in favor of alternatives to fossil fuel, in fact, I believe that finding such alternatives is one of the great challenges of our times. But an “alternative” that has to be propped up by protectionist measures put in place for political purposes is no alternative at all.

Regardless of how well a government thinks in can out-wit the markets, fortunately often simple economics comes back into play to show the fallacy of ill-thought-out policies. This is no clearer than in the ethanol market today.

There are many reasons for the high price of food right now, and I’m not claiming that there is one single magical cause. But a major contributor has to be that the price of corn is shooting up because of all of the protections around corn-based ethanol.

While these protections may not be going away (they are politically valuable), they are at least being called into question. And that is having a chilling effect on the corn-ethanol industry.

"If you sell one product and the only reason there's a market for it is because the government makes a law requiring consumption - if that law goes away, obviously you're in trouble," Gilpin said.

Greenwald argues that if there are still government regulations in your favor, that could be a competitive advantage. Indeed, the corn-ethanol industry has enjoyed competitive advantage verses other ethanols (Brazilian sugarcane for example) precisely because of these regulations. However, I don’t think Greenwald or anyone else would argue that if those policies are fundamentally uneconomic, they present a long-term haven. An attack on this false safe-haven is what we are seeing now in the markets.



Ethanol Turmoil Calls for Legislative Change a Threat to Some Companies - Business - redOrbit

Friday, May 23, 2008

Retire on Dilbert

Just read Dilbert. It is so simple it is genius, even I get it. As relevant now as it was two years ago.

Dilbert's 9-point financial plan worthy of economics Nobel - MarketWatch

Monday, May 19, 2008

An Alarm Is Blaring: Time to Buy - New York Times

This strikes me as an articulation of the "buy low, sell high" mantra... and right now things seem to be low.

An Alarm Is Blaring: Time to Buy - New York Times

Wednesday, May 14, 2008

Our Great Economic U-Turn - WSJ.com

Surprising words from the WSJ. A pro-labor plea is not what I usually expect to read in their pages (or on the website.)

Growing income inequality, rising inflation, the credit crisis, an unregulated financial system that seems to have run amok all play into what seems to me to be a sea-change in society's general take on government and regulation.

It feels to me that we're going through a generational change, similar to the one that occurred in the 1980s. Society will be demanding more from government and while huge, bloated bureaucracies will (hopefully) remain out of style (although we still seem to have them IMHO), society in general will demand govt. to be more pro-active in addressing problems. I don't view this as "anti-market" per se, but a realization that the market cannot solve all problems and that markets by their very nature (profit-maximizing) need to be contained in some ways so they can operate for the benefit of society.

The change is happening, regardless of who wins the presidential race in Nov. The only difference Nov. will make is the degree of change.

Our Great Economic U-Turn - WSJ.com

Thursday, May 01, 2008

War on savers

Inflation is eating away at your money faster than a normal savings plan will grow it. Bottom line, it now costs money to save. Seriously, how did we get into this mess? (That's a rhetorical question).

If increasing savings in the US was difficult before, it is actually counterproductive now. There is actually no point to save. This is great news for fans of foreign deficits

Here's the money quote on how depressing the situation has become:

"As I pointed out last week, one of the few things you can do easily to avoid this trap (inflation) is to buy some of your family's non-perishable foods, like pasta and canned foods, ahead of time and in bulk. Their prices are rising much faster than your savings are growing in the bank."

Fed Move Is Tough News for Savers

Friday, April 25, 2008

The importance of separating globalization from politics

I don't really want to get into politics on this blog, but Nicholas Kristof makes some excellent points in his oped Better Roses Than Cocaine.

While I am an admirer of both Hillary Clinton and Barack Obama, I have been quite disappointed with their take on globalization (for the record I consider myself, among other things, both pro-trade and liberal).

At the core of the world's troubles is a question of economic security; you are more likely to be tempted by radical ideologies if you don't have it. In effect, when you have nothing to lose you become fertile ground for anti-social behavior.

Obviously, a lack of economic security isn't the only cause of radical ideologies, and there are many examples of those who are economically secure acting in anti-social ways. (I'm currently reading Confessions of an Economic Hit Man which provides enough examples)

All that said, global stability is obviously good for everyone, but it is especially good for the US as many of the world's problems often come washing upon its shores. Promoting economic security around the world is a far more effective way of, to paraphrase, fighting problems abroad so they don't have to be fought here.

The issue is neatly summed up here:

As she clips flowers in a vast greenhouse, Ms. Reynosa knows that her future depends on access to the American market. She agrees that Colombia has human-rights problems, but she argues passionately that the free-trade agreement is the way to register continued improvements. More trade will mean more jobs and more security and human rights, she argues.

Monday, April 14, 2008

Food inflation and biofuels

Food inflation is terrible but even more worrying are some of the steps being taken in an attempt to manage it.

Run-down on the whole problem in this article: Food Inflation, Riots Spark Worries for World Leaders

Here are some money quotes:

The global effect of export barriers, however, is to drive food prices even higher than they would be otherwise. Such policies "distort global prices," said Mr. Simsek, the Turkish finance minister, in an interview.

Yep, totally agree.

During informal conversations and interviews, ministers mainly agreed that the U.S. policies on biofuels were especially harmful. U.S. ethanol is made from corn, which, ministers said, could be exported to feed the hungry, and benefited from tariffs that block Brazilian ethanol, which is produced much more efficiently from sugar cane.

Ummm... Where have I heard that before?

Friday, April 04, 2008

For good and for profit

An article in the NYT talks about the controversy surrounding Compartamos, a publicly traded for-profit microlender in Mexico. I don’t know anything about Compartamos, so I won’t defend them directly. But I will take on the criticism that they are making too much profit off the backs of their clients, who are poor micro-borrowers.

But Compartamos’s decision to go public last April became a flashpoint in what had been a genteel debate over how microfinance could tap into the financial markets’ vast resources. The initial public offering gets special mention at every microfinance conference, and has been condemned by Mr. Yunus, the Nobel laureate.
Alex Counts, president of the Washington-based Grameen Foundation said Compartamos’s poor clients “were generating the profits but they were excluded from them.”


They key point in my opinion is made here in the story:

After Compartamos became a for-profit company in 2000, costs fell as efficiencies increased, but the bank kept interest rates high. On average, customers pay an annual interest rate of almost 90 percent, which includes 15 percent in government tax. In much of the world, microfinance interest rates range from 25 to 45 percent. But in Mexico, high costs, inefficiency and limited competition keep interest rates much higher. Compartamos’s rates are only a few percentage points higher than Pro Mujer’s, for example.

Simply put, in their quest to become profitable, Compartamos has become a highly efficient lender. As other microlenders were non-profit and not as efficient, Compartamos could afford to offer essentially the same market rates as the other lenders and pocket some money for themselves and their shareholders.

If Compartamos can offer essentially the same service as other banks, then it is hard to see how they are taking advantage of their customers. Sure, rates are high (90%?!?!?!?!...geez!), but all microlenders are offering similar rates.

The answer here is not to discourage for-profit microlender, but to encourage it! Hopefully others will see Camportamos’ success and seek to replicate it. This will bring more for-profit players into the market and in their quest to compete, they will begin to offer loans at lower rates.

After Success, Problems for Microfinancing in Mexico

Tuesday, April 01, 2008

Food inflation

The FT talks about a worrying trend to restrict global trade in food.

Countries are reducing import tariffs (a good thing) but to maintain some semblance of control over their food supplies, they are propping up export tariffs, which is bad. By reducing foreign competition (because countries aren't exporting as much), such export taxes on a global scale could have the impact of driving up local prices and limiting local supply.

If no supply is coming in from abroad, local producers of a restricted item (say corn or rice) will have an incentive to limit local production in order to drive prices up and make more profit.

I can hardly bemoan a poor farmer trying to make a healthy profit, but the end result is more hardship across a society. With a profit-maximizing farmer reducing supply, there is obviously less food to go around which increases prices and, ultimately, misery.

Monday, March 31, 2008

Dollar vs. Euro

Following my post: "Why is the Euro doing so well...", a reader asks:

What about the other currencies, it's not just the dollar. Banks have started switch more and more of there reserve currency from the dollar over to the euro.

Good question, so instead of answering in the comments section, I thought I'd do a post. So here's my reading on the situation:

First off, it is not that the USD is just doing poorly against the Euro, it is also faring badly against other currencies as well. I hail from Canada so US$/C$ exchange rates are always of interest. I can tell you that going back up to Toronto to visit friends and family isn't as cheap as it used to be. Friends and family now view us as the poor American relations coming North to mooch off of them.

US$/C$ parity was such a momentous occasion, I actually remember where I was when I first learned of it back in September.

In regards to the question of banks switching over reserve currencies to the Euro, I think the reader is referring to a number of countries, namely China, using a basket of currencies (rather than just the USD) either as a reserve or as a peg.

The reason here is diversification. The dollar is tanking so if you're holding a large amount of dollars (as China is), then your holdings are rapidly declining. If you want to stabilize your holdings and diversify away some of your risk, then you’d want to start holding other currencies.

Essentially all of your value/risk is tied up with one currency and in the current environment, if that currency is the USD then you’re not feeling as rich as you once did.

If you’re pegged to the USD (meaning your local currency has a fixed exchange rate to the USD), then the value of your currency is also declining. For countries that import a lot, a declining currency is putting yet more very unwanted upward pressure on prices. This is particularly worrisome in the Gulf countries where the influx of oil money and their declining dollar-pegged currencies are contributing to huge increases in inflation.

The next question usually is, will the world move off the USD as a reserve entirely? Not likely, IMHO. Too many things are still priced in dollars and the dollar-as-global-reserve is too ingrained in the current system. It would take a huge calamity, greater than the credit crunch we are currently facing, to move the world off the dollar-reserve.

Friday, March 28, 2008

Galbraith, the new Friedman?

With the credit crunch and the looming recession, there seems to be a growing demand (and apparent appetite) for increased regulation (heck, even the Bush administration has gotten on the activisit government bandwagon)

For the last 20+ years, the patron saint of economic thought in the US was Milton Friedman. But given the above observations, and given that people like Greg Mankiw are linking to reviews of John Kenneth Galbraith (although there probably is not any implied endorsement of the reviewed ideas), I cannot help but think, in what I believe is a coming age of more liberalism in the US, will Galbraith be the new Friedman?

Wednesday, March 19, 2008

Consolidating the blogosphere

TechCrunch asks whether 'tis nobler in the mind to take the slings and arrows of venture capital, or take arms against a sea of excessive valuations and by opposing them, consolidate the market!

Ethanol and protectionism

I heard on the radio the other day about how the increase in the general price of food is being traced back specifically to the increase in corn prices. The logic is that corn is an important source of animal feed so as it becomes more expensive, there is a ripple effect that drives up the price of feed which in turn drives up the price of meat.

The cause of the rise of corn prices? Apparently it is ethanol. Because of the alternative fuel craze, ethanol producers are gobbling up supply of corn and driving the prices up. To venture backed ethanol companies, this rise in prices may not seem like such a big deal (and the farmer certainly love it!) But for the rest of us who like to eat, a rise in food prices is yet another dent in our already banged up wallet.

And with that, the two radio shock jocks went on to slam ethanol, the environmental movement, and the whole green craze for causing more trouble that it is worth.

Taking what they said on the connection between corn and food prices at face value (certainly seems plausible), it is still hard to blame ethanol producers for the run up in corn prices. This is not a green question, this is an economics question.

Agriculture is a heavily protected industry in the US (and much of the world.) As a move to boost farmers’ incomes in the Midwest, the US government has been supporting and protecting the US corn-based ethanol business.

There are however rivers of cheaper sugarcane-based ethanol coming out of Brazil. If the government were to relax protection, these rivers would flood into the US market. The result would be cheaper ethanol that would displace the more expensive corn-based ethanol. This in turn would reduce demand for corn and prices would drop. So if the market was allowed to operate unencumbered, we would have cheaper food and cheaper ethanol.

So if the shock-jocks on some random Bay Area radio station are listening, it is not ethanol or environmentalism that is driving up prices, it is agricultural protectionism.

Wednesday, March 12, 2008

"Why is the Euro doing so well..."

...a European friend recently asked me.

"It isn't," I replied with a sigh. "It is just the US dollar is doing particulalry poorly.

Tuesday, March 04, 2008

For the Fed, a Recession -- Not Inflation -- Poses Greater Threat - WSJ.com

Can't think of any commentary at the moment... but take a minute to go through this, it is a good read.

Thursday, February 28, 2008

That '70s Show - WSJ.com

In no way am I begging for a recession in 2008. But if we have one, however bad it may be, it surely won't be as bad as anything resembling the "s-word".

I'm all for growth, but I don't feel like that is the Fed's main responsibility, price-stability is. Sacrificing price stability in favor of growth will leave us with neither.

And it is not just me highlighting this, but also people way smarter than me.

That '70s Show - WSJ.com

Here's the money quote:

One lesson of the inflationary 1970s: A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public's complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession. And enduring the deeper recession is the only way to convince the public that the Fed has at last decided to slow inflation.

Brazil tops MSCI

Brazil is now the largest stock market on the MSCI emerging markets index, and as a long-time investor in the Brazilian equity market I have to say this news has brightened up an otherwise less than stellar day.

So, why is Brazil doing so well? The FT has some thoughts here (watch the video too).

While I buy the argument that the commodities is fueling the bull run, I don't have much support for the "decoupling argument" -- that perturbations in the US market have less and less impact on the emerging markets. (How can the world markets be simultaneously "globalized" and "decoupled"?)

That said, Brazil's insular nature seems to have at least buffered Brazil from what is going on in the global markets. Credit within Brazil remains strong, although IPOs have dropped. The FT also notes that Brazil responded favorably to the Fed's drop in interest rates (how does that play into the decoupling theory?)

Brazil is doing uniquely well as a commodity exporter based of off the huge recent discoveries by Petrobras and the positive impact that news had on its stock price.

Saturday, February 23, 2008

Microhoo! Let the lawsuits begin

The longer Yahoo! stonewalls, the more and more of these lawsuits are going to pile up.

You can't blame the shareholders for wanting to see a deal after patiently holding on to Yahoo! stock, and you can't blame Yahoo! management for seeking a better deal; but eventually everything has to find an equilibrium and if no better offer presents itself, Yahoo will have to sell.

Right now, it just feels like Yahoo! is delaying the inevitable.

Thursday, February 21, 2008

China and inflation

Paul Krugman again weighs in on China and inflation.

Basically, he says that an increase in the price of Chinese goods is not sufficient to cause US inflation. The actual China cost is just a small percentage of a US price; transportation, overhead and so on form a greater percentage of the total cost of a good.

True. I think China's impact on US inflation is more indirect.

1) China has a huge demand for commodities. It's additional demand is causing the price of the supply to rise.

2) Commodities are priced in US dollars. With the dollar tanking, the price of dollar denominated goods will rise.

This combination will continue to be a nasty one-two punch on the US economy until either demand dries up (not likely) or the dollar strengthens, but it is hard to see how that will happen with interest rates so low and probably going lower.

The s-word

Oh #$%@&#^*$%#@!!!!

Monday, February 18, 2008

U.S. Import Prices Soar, Boosted by Chinese Goods - WSJ.com

Increasing global demand pushes prices up, and a dropping US dollar makes more expensive goods seems even more expensive.

This shouldn't surprise anyone

U.S. Import Prices Soar, Boosted by Chinese Goods - WSJ.com

Update: More on China and inflation.

People want large cap exposure...

And I agree. They're pushing XLG on TheStreet.com.

Me? I'm in VV.

The look pretty similar to me but VV has an expense ratio of only 0.07% vs. XLG's 0.2%. Am I missing something?

Saturday, February 16, 2008

MicroYahooNews

Hi, I’m back taking a look at the Microsoft-Yahoo-Anybody else but Microsoft deal. I gotta admit, I’m having fun looking at this from all the crazy angles that are being thrown out there but as I’ve said before, the only deal that makes sense is Microsoft and Yahoo.

The only way to answer the question over which is the best suitor for Yahoo is to answer the Yahoo existential question… is it a technology company or a media company.

Apparently News Corp is looking at Yahoo as well. Not sure what I see is the gain here but who am I to quibble with the genius of Rupert Murdoch?

Yahoo would gain the social networking site MySpace, while Rupert Murdoch’s News Corp would take a 20 per cent stake in Yahoo, according to those close to the situation.

So where does that leave us on the quest for Yahoo existential meaning? Yahoo: I’m a media company… no I’m a search company… no wait, with MySpace I’m now a social networking company!

MySpace is a formidable property but for a company that couldn’t fend off one innovative competitor, it seems hard to imagine how Yahoo will fend off two; Google on one side and Facebook on the other. And where’s the (sorry readers) synergy? Yahoo search on MySpace pages? They could displace Google’s ads so I guess that is worth something. Taking down all the Google ads will distract Google for about a nano-second until they find other outlets, Yahoo and MySpace will be distracted for years trying to find interesting ways to integrate the two services.

Shahid Khan, an analyst at IBB Consulting, pointed to the massive internet audience that a Fox Interactive-Yahoo merger would create, and its power in particular content verticals. The two groups could combine Yahoo Sports, for example, with Fox Sports, and Yahoo Finance with the Wall Street Journal and MarketWatch websites.
“If you take a step back, it could make a lot of sense for them,” Mr Khan said.


Huh? Why? A lot of these sites recycle the same content anyway, so where’s the benefit? Firing a couple of writers? Besides FoxSports is on MSN and it doesn’t seem to be doing them a world of good. I get the feeling I’m missing something.

YahooFinance already links to WSJ online content so again, I don’t see the benefit. Firing some of YahooFinance’s writers I suppose? Big savings there! The average cost of running the two sites may be a bit lower, so there are some cost savings there. I bet the two sits share a lot of the same users so the marginal increase in traffic by merging the two sites would probably be low.

At least this part of the deal answers the existential Yahoo question… it is a media site.

YahooNews would just further fragment the market. Yahoo would be on life-support, News Corp has a search engine that it can merge with MySpace for some as yet unimagined benefit, and MSN…well… who knows what happens to MSN.

Google for its part maintains its customer captivity because there is no compelling reason for customers to leave. And as there are no existential mysteries to Google’s technology-being, it is free to continue its assault on MSFT and the rest of the IT industry while MicroYahooNews all try to figure out what it really means to be a “portal.”

Friday, February 15, 2008

I've lost my confidence


I woke up this morning, looked at how my stocks are doing and now, harkening back to my awkward high-school days... I have no confidence.

Thursday, February 14, 2008

The global/local paradox

It is not just markets that are globalizing, but companies are as well.

Being a globalized company means more than just having a single corporate HQ and selling abroad. It is the globalization of the HQ itself, with different senior corporate functions being located in many parts of the world.

In doing do, the company in effect becomes a local one. The global company mimics the behavior of an indigenous company because key corporate decisions are made within the country's boarders.... even though those decisions have global impact.

A company truly becomes global when it mimics a local company in as many different countries as it can.

Thoughts on deficit drop

Some quick thoughts on whythe drop in the US trade deficit.

Low dollar means foreign goods are more expensive here, so demand drops. Low dollar also means the US goods are cheaper elsewhere so demand abroad increases. This may be fine while it lasts, but a low currency is not what I would call a sustainable competitive advantage for the US.

The positive side to this, however, is that exports could help lessen the impact of a recession. Recovery could very well be export-lead.

Low confidence could mean that consumers are spending less, that would worsen the impact of any recession. On the plus side, however, if consumers are spending less, that could mean that they are (hopefully) saving more.

If that becomes sustained, that would be a huge plus because it would keep permanent downward pressure on the trade deficit, could boost liquidity without excessive interest rate cuts, and in the long run will make the individual financial situation of US consumers more stable, especially in their retirement.

U.S. Trade Deficit Contracts Despite Record Price of Oil - WSJ.com

Some quick thoughts on whythe drop in the US trade deficit.

Low dollar means foreign goods are more expensive here, so demand drops. Low dollar also means the US goods are cheaper elsewhere so demand abroad increases. This may be fine while it lasts, but a low currency is not what I would call a sustainable competitive advantage for the US. The positive side to this, however, is that exports could help lessen the impact of a recession. Recovery could very well be export-lead.

Low confidence could mean that consumers are spending less, that would worsen the impact of any recession. On the plus side, however, if consumers are spending less, that could mean that they are (hopefully) saving more. If that becomes sustained, that would be a huge plus because it would keep perminante downward pressure on the trade deficit, could boost liquidity without excessive interest rate cuts, and in the long run will make the individual financial situation of US consumers more stable, especially in thier retirement.

What retails sales really look like

Scroll to the bottom of this post to see what retail sales really look like.

Yesterday, there was a lot of excitmenet about retail sales actually ticking up.

But it seems that if you factor in inflation (ie: nominal sales numbers looking good not because there was more valume of sales, but because prices were higher), retail sales were negative.

Canadians: Think Globally, Act Locally

I've been reading a lot recently about how culture and general timidity have prevented leading Canadian companies from expanding globally.

The flip-side seems to be a lack of Canadians willing to invest locally.

It seems VC money is flowing in Canada, but it is from foreign sources. Now, I have no problems with the global flow of capital, in fact, I actively support that. A country such as Canada should be welcoming of VC money from the US and elsewhere. But here's the money quote:

So while the news of VC investments is good, "we need strong Canadian investors if we want strong Canadian companies," says Rick Nathan, president, CVCA and managing director of Kensington Capital Partners.

So true.

Here's the real threat to US competitiveness

If you're really worried about US competitiveness, you should be more concerned about drops in research than about globalization.

Spinning a Global Plan - WSJ.com

Pretty good interview with IBM's Sam Palmisano talking about global ambitions.

Once again the issue comes up about foreign workers being a competition to US ones. I find this line of questioning to be uncreative.

1) This competition will push US workers into higher value jobs.

2) Opening markets abroad is essentially a form of global income redistribution. IBM (or any other company) actively doing business abroad creates jobs and wealth, which in turn creates new markets for goods and services.

Here are some money quotes:

WSJ: There's a lot of worry that globalization means fewer jobs and lower pay for U.S. workers. Is that a legitimate worry?

Mr. Palmisano: It's actually a big opportunity. Why not take advantage of it? The leading nation in the global economy is the United States of America. Great schools. Great capital formation. A system that works.

WSJ: Some would say that if you're helping Vietnam or South Africa build their education systems, it takes away job opportunities from Americans.

Mr. Palmisano: There is a real issue here where I think we need to do something more [in the U.S.]. IBM announced programs where we'll match money put in a learning account, and you can apply those tuitions to get future skills that you think are necessary for you.

WSJ: Can you give an example of a smaller country where your work has expanded rapidly?

Mr. Palmisano: Egypt's growing like crazy. We have a huge software laboratory in Egypt. It's doing development for IBM: software components and middleware. At the same time, it's doing commercial work, which they would view as an export business, you know, for clients around the world. The commercial business is growing double digits, right? Egypt is one of the largest populations in the Middle East and has a government that's trying to modernize its economy.

Finding the dark cloud in the silver lining

Yay!!! Retail sales are up!!!

Boo.... it is because of inflation....

:-(

Here's the money quote:

Part of the gain, however, stemmed from higher gasoline prices. Retail-sales data aren't adjusted for inflation.

Wednesday, February 13, 2008

Growing like a BRIC

This video gets a little down in the weeds on Brazilian tax policy (aren't you glad you landed on this blog... we have all the fun!) but the broader point here is well made, taxes and regulation in Brazil are respectively high and onerous. Brazil has the lowest growth at around 4%-5%, with Russia growing over 6%, India at 8% and China over 10%. Although interestingly, Brazil scores the highest of the BRIC countries in the Heritage Foundation's economic freedom index, so taxes or no taxes, they must be doing something right... or at least better.

Also, Brazilians seem to be very enthusiastic about globalization and are among the few who would actually like to see the pace of change quicken; far more so than Indians or the Chinese. Without have any data to back this up, a wild guess why this may be is that Brazilians see the benefits of globalization but are frustrated they cannot reap these benefits fully because of their cumbersome tax structure.


Will America export its advantage?... oh get over it.....

Based on a story in the NYT on US colleges opening campuses abroad, the Managing Globalization blog askswill America export its advantage? (see blog post for link to NYT story.

I know the question is rhetorical, but it does seem a little basic. Yes, higher education in the US is one of the most coveted prizes in the world, but opening up campuses abroad is not a wholesale exportation of that prize.

First off, these foreign campuses would mainly be lecture institute rather than research institutes. A main source of US competitive advantage is the research that is generated within its boarders

These foreign campuses also provide an incredible learning experience for US students. The marketplace is global and attending school abroad is a great way for students to learn about that.

The focus of the NYT piece is on Gulf countries. US colleges in the Gulf countries play several beneficial roles there. The colleges promote cross-cultural dialog and help lay the foundation for oil-reliant countries to diversify their economies. The most dangerous state is a failed one. By helping states diversify their economies and become more stable, foreign colleges play an important role in promoting stability.

I could go on but I'll end on this final thought; the basis of US competitive advantage is multi-faceted. This is not to say that this allows the US to be complacent about protecting its competitive advantage, far from it. But it is difficult to point to one element of that competitive advantage and say if the US shares that, then all is lost.

Monday, February 11, 2008

OK fine! Financials do matter...

So here I made the argument that the farther you go from the financial sector, the less of an impact you're feeling from the current recess...ummm... downturn.

Well, despite my efforts to pigeonhole the financial sector, it seems it is really important! At least, according to the newly reformulated DJI. Big oil has been added as well, so I guess that industry is also pretty important.

This news, coupled with manufacturing taking a bit of a back seat on the DJI (Honeywell got booted off) illustrates the direction the US economy is going. Making stuff is out, powering stuff and financing stuff is in.

Saturday, February 09, 2008

Recession to be longer than usual: UMich | U.S. | Reuters

Recession to be longer than usual: UMich | U.S. | Reuters

Here's a quote:
Paradoxically, worsening economic conditions will induce families to save money, reinforcing the drag on an economy that has become largely reliant on consumer spending.

True, but increasing US savings would also reduce the trade deficit and would also help shore up the dollar. Increased savings may also do more to boost lending than the current reduction in the interest rates. Increased savings would keep more money in the US system and mitigate the necessity for aggressive monetary policy.

I'm also guessing that consumers with more savings in their accounts would also be a lower credit risk, making them more attractive to banks.

And finally, increased (and sustained) savings in the US means there won't be a generation of pensioners in about 20-40 year without enough money to live off of.

I'm not begging to a long and deep recession, but if it hurts enough to in some ways impact the mentality of the current generation and encourage them to save more, borrow less and spend within their means, then the current period of pain will be worth it in the long term.

And oh yeah… what would a post be without my obligatory warning on inflation (which increased savings would also help mitigate.)

Inflation pressures will linger despite the retrenchment in consumer spending, complicating the task of policy-makers, the University's Richard Curtin said in a report, citing data from industry group The Conference Board.

Wednesday, February 06, 2008

The Harvey Dent economy


The economy.... is turning into the deadly Two-Face. Impeding recession pushes interest rates down, but looming inflation would push them up.

The money quote:
He said he expects core inflation, which strips out volatile food and energy costs, to remain above 2 percent, "which is above the range I consider to be consistent with price stability."

Lacker also said it was worrisome to see inflation at current levels. The overall consumer price index rose 4.1 percent in the 12 months to December, while the core rate, which excludes energy and food, climbed 2.4 percent.

"We can't cut interest rates as aggressively in response to weakness in growth as we otherwise would," Lacker said. "We're going to be posed with some problems this year if inflation doesn't moderate the way we'd like to see it moderate."

So why should Google care?

OK... I know what you're saying... you're saying "I read your post on Google's competitive advantage and there is no way Microhoo! can break Google's lock on the customer, so they have nothing to worry about, right?"

Nope, they've got plenty to worry about. In a 1:1 match-up Microhoo! can now directly challenge many, if not all of Google's revenue sources. Because Microhoo! has multiple lines of business (crappy OS immediately comes to mind), it has the resources to enter into a long and protracted price war with Google.

Say goodbye to those profit margins Google! If Microhoo is successful it is going to drive prices straight down. This is probably in retribution for Google thinking it can get into the office productivity space (word processing, spreadsheets and whatever.)

A price war would rendering Google's main sources of revenues (ads, monetizing search) relatively worthless, leaving Google unable to fund further expansions into Microsoft's software space.


Hat tip again Greenwald

Competitive advantage of Google

A few thoughts on the proposed Microsoft/Yahoo deal.

People have been throwing around all sorts of ideas, pro and con, on the deal but at its core, the question on the merits of this deal boils down to one of customer captivity.

For whatever reason, people like to use Google and while it is very easy to click and use another search engine, many people don't. While there are no financial switching costs, there may be some psychological ones (I know how to "Google" something on the net, I have no idea how to "Yahoo" or "Microsoft" something.) So this psychological hold Google has on customers is its one and only competitive advantage.

There is no technology competitive advantage. I think for most users, Google, Yahoo and MSN are essentially the same. Hard-core techies could probably point out some performance differences, but my mother can't.

It isn't about scale. Marginal costs are meaningless online, each new user costs nothing to the company. Maybe Microhoo's! fixed costs will come down somewhat due to synergy (whatever) but ultimately the average costs between Google and Microhoo will remain little changed, so there aren't any cost advantages to be had.

So what other competitive advantages are there? I can't think of any. The only thing Google has to protect its position is the fact that users are simply accustomed to using Google. Microhoo! therefore has only one goal, to break users of the Google habit.

If Ballmer and co. can do that, then this deal is worth something. If they can't, then adding the number 2 position with the number 3 position will not equal a number 1 position.


Hat tip: A lot of this thinking is powered by the writings of Bruce Greenwald. Prof. Greenwald, in the unlikely event you're reading this, I hope I got it right.

Tuesday, February 05, 2008

Succumbing to unnatural forces

From the Big Picture.

Here's the money quote:

Consider how many of our current problems are due to ill-considered poorly thought attempts to avoid a cyclical recession. Not only is our mess man-made, but it was totally unnecessary.

Interest rates are down... but who's lending?

Paul Krugman wins the "downer-of-the-day" award... but he's got a point, this current credit crunch sucks worse than a bunch of the previous ones.

Which to my mind raises a question about the Fed... what is the use of cutting interest rates of no one is lending? The current economic malaise was caused by too much cheap money, not a need for more of it.

Slowing China, cheaper commodities

A slowing China could take some of the strain off of the commodities market. China's buying a whole lot of trees and rocks and liquefied dinosaurs and stuff, and that is driving prices up. If they slow down, maybe the prices of commodities will recede a bit as well.

Obviously the question of a slowing China is how controlled it will be. A hard landing has some people losing sleep.

A recession... or something like it.

look, I'm not going to say the economy is not in trouble... it is and it may get worse before it gets any better.

Hell, it may get much better, and then get much worse all over again for an entirely different reason.

But I cannot help but think the current economic hit we're taking is smacking the financial sector particulalry hard and their whining is getting the rest of us down. So the farther you get from financials, the less of a whack you may be getting.

Factories Remain Solid as Orders Increase - WSJ.com

Sunday, February 03, 2008

China exports inflation

I guess I'm in the mood to read and write about inflation this evening...

Here's a piece in the NYT about China's inflation being exported to the US.

Krigman, however, thinks the piece overstates the case.

You know, it wasn't that long ago that I'd spend my Saturday nights out partying rather than blogging about economic issues that, in all truth, I really don't know a whole lot about.

Inflation in Europe

The Europeans are taking inflation much more seriously. But I'm wondering if their main inflation worries are trying to stamp out inflation expectations amongst the population.

When workers begin to expect inflation, they build it into their wage demands and in effect it becomes a self-fulfilling prophesy. People get inflation because they expect it and price it in themselves.

The ECB seems to be aware of that and is trying to nip expectations at the bud.

I would thing that other price increases, especially for imported goods, would be mitigated by the super-strong Euro. (Strong Euro increases the ability by Europeans to buy goods on the global market.)

Let's talk about inflation, baby

FINALLY... amongst all of the talk about interest rates and recession, someone bring up the problem of inflation.

I've been yabbering on about inflation for a while but it seemed no one was paying attention to me... I was starting to take it personally.

Greg Mankiw weighs in with:

A rise in expected inflation is not consistent with the conventional wisdom that the economy is on the verge of a serious slump driven by inadequate aggregate demand.

My thoughts (sorta) on that here and here.

In a nutshell, recession talk in the US may be fueled by low domestic demand, but high global demand for products will keep pushing prices up at the exact same time the US dollar (read, American’s ability to buy stuff) drops.

Friday, February 01, 2008

Please get fiscal policy out of the way...

I'm going to agree with Mankiw on this one, the current mess is no place for fiscal policy. I don't have high hopes for the current stimulus package.

I would even go one step farther and suggest that the Fed's monetary policy isn't helping much either.

Thursday, January 31, 2008

In praise of decoupling

A kindler, gentler look at decoupling but I remain unconvinced.

Basically there are two huge drivers to global growth right now, US and China, both are at the center of an ecosystem of other economies feeding into them.

And here's the kicker, China relies on the US.

Here's the money quote:

Diversification will only go so far, however, particularly if US consumption nosedives, says Mr Sheard. “Asia, centred on China, has become even more interlinked into the global economy, the driving impetus of which has been the US,” he said. It is hard to be global and decoupled at the same time.

Next bubble?

Looks like we're deep in a GreenTech one... with agriculture quickly gaining ground?

Wednesday, January 30, 2008

The new paradigm: Bubbles

Basically this is MarketPlace article on an upcoming Harper's article relates back to what I said here, about a new bubble paradigm overtaking the economy.

While the Asimov and Frankenstein references in the article point to a woeful misunderstanding of great sci-fi literature, the point is clear... we're entering into a fast and loose economy of blowing bubbles, rather than sustainably creating wealth.

The price of cheap money (see Fed cut) to fuel unreasonable growth (see past dot-com, housing bubbles), is an economy that will continually run through rabid big bang and big crunch phases, sort of like viewing the entire history of the universe in fast forward at a Kagillion time speed.

Hepped up on goof-goof

ok.. fantatic, markets are shooting up. I hope the crash doesn't hurt so hard when the high from the interest rate cut wears off....

BBC NEWS | Business | US rates cut to avoid recession

Now They Tell Us - Forbes.com

Ummmm... isn't the ability to evaluate risk kinda important? If we just throw our hands up and say we can't do it, doesn't that make investing a tad more difficult?

Now They Tell Us - Forbes.com

Foreign Demand Aids Durable Goods - WSJ.com

This is one of the more interesting articles I've come across and I think gives some hints as to what is going on in the economy:

1) This is a consumer lead downturn

2) From a US business perspective, it is financial institutions that are in trouble. Sure, financial institutions are important but when we talk about an economic slow-down, is it really impacting US businesses across the board or is it focused on one (admittedly large) segment of US enterprise?

3) US manufacturers like the low dollar. That is good in the short term but what happens when/if the dollar goes back up?

4) I still equate low-dollar with the inevitability of higher inflation... it is out there, somewhere.

Foreign Demand Aids Durable Goods - WSJ.com

Thursday, January 24, 2008

We Need Their Money

Not a great interview here, but an important bottom line. We can whine and complain all we want about sovereign wealth funds (not that I think we should), but the bottom line here is "we need their money."

To my mind, I think it is better SWFs invest in US assets than try to sell US currency for something of higher value (not that they would, of course, because doing so would probably harm their own currencies that are pegged to the dollar.)

Here's a great (rhetorical) question, how did they get all this money to begin with? US savings.... anyone....?

We Need Their Money - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Wednesday, January 23, 2008

Market’s Wild Ride Ends With Dow at 15-Month Low - New York Times

My new phrase of the day: "American contagion".

I think US/global decoupling was a nice theory, but clearly it doesn't hold. When you think about it, it is also counter-intuitive... in a globalized market all economies are being increasingly "coupled", right?

Market’s Wild Ride Ends With Dow at 15-Month Low - New York Times

Fed and a new paradigm?

As usual, the Big Picture succinctly puts into words what many of us may be thinking... is it really the Fed's job to be bailing out the markets? I'm hurting as much as the next guy with the markets tumbling, but it strikes me that much of the cause of the current pain is due to too much meddling in the past (excessive policies on both the monetary and fiscal fronts). Therefore, I'd be willing to go through some pain now to ensure smoother, more sustainable growth in the future.

We're had at least two bubbles in less than a decade... tech and housing (and I suppose an emerging market bubble that is biting me in the ass right now). So maybe this is the new paradigm; in search of increasingly more rapid growth, we need to also be prepared for more frequent bubbles and their subsequent bursts.



The Big Picture | Is the Fed a Paper Tiger?

Tuesday, January 22, 2008

The Fear Is Palpable. Time To Buy. - Seeking Alpha

Sage advice...In a nutshell... don't worry, be happy.

In a little less flippant way, unless you feel there is something fundamentally wrong with your current portfolio or the capital markets in general, the average investor shouldn't make moves to try to avoid or out-think the market.

So Much for the Decoupling . . . .

wait... that is what I just said.

The Big Picture | So Much for the Decoupling . . . .

The bears are having their day it seems, but I would be suspicious of too much kodiak chest-thumping. If you claim anything long enough (like the economy is about to tank) it is bound to come true sooner or later.

Monday, January 21, 2008

World stocks routed on fears for economy - Yahoo! News

"Risk aversion is widespread as the market thinks (the economic downturn) is not just a U.S. centric story," said Paul Robson, currency strategist at RBS Global Banking.


oh well... so much for the oft told theory of the "decoupling" of the world economy and the US economy.



World stocks routed on fears for economy - Yahoo! News

Friday, January 18, 2008

Time to re-enter the market?

Two views from Big Picture.... maybe yes.... or... maybe maybe...

Bernanke Backs Calls for Quick Action

Federal Reserve Chairman Ben Bernanke threw his support behind quick and temporary tax breaks, combined with the possibility of "substantive" rate cuts, in testimony before Congress.

Isn't that the formula that got us into this mess to begin with? If previous growth wasn't sustainable, with this new "stimulus package" aren't we just starting down a new path of unsustainable growth?


Bernanke Backs Calls for Quick Action

Thursday, January 17, 2008

American recession, global inflation?

I heard from an economist the other day that the world may be heading towards both a US and China slow-down. The US slow-down (recession) he argued will be relatively mild and not have a great impact outside the US. A China slow-down would hurt emerging countries (because China buys all of their commodities) but will have little impact on the West.

But what about a US recession and continuing strength in China? Economic growth slows domestically and the dollar drops, but global prices remain high and even climb?

The US faces recession from within, and inflation from without. That could greatly exacerbate what may otherwise be a mild US slow-down.

The economy | A delicate condition | Economist.com

Friday, January 04, 2008

Inflation vs. Recession

What scares you more, inflation or recession?

Me....I'm more afraid of inflation so I say "boo" to agressive rate cuts.

Fed's Inflation Fears Might Trump Calls for Another Big Rate Cut - WSJ.com