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 -

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. / 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. / 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 -

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