Penguin IP

A Musing

2010-03-11T06:32:00.000Z

I've decided to retire this blog and start anew.

The new home for my thoughts can be found here....

A Musing

Of bankers and boring: Sources of Canadian pride

2010-02-01T22:20:00.001Z

There is quite a list that Canadian rightly feel proud about such as having better beer than the Americans; adding colour to color and bestowing honour to honor with the extra “u”; and saying the last letter in the alphabet the way the Queen wants us too.

Now we can add one more thing we Canadians will brag about endlessly… having notoriously boring (but solvent) banks.

We are in a new era indeed when bankers become a source of national pride!

What Toronto can teach New York and London

Good and Boring

Tax I can sign up for...

2009-12-28T19:15:00.003Z

Not only do I hope a gas tax is no longer unthinkable, I also hope it is inevitable. Given all the pressures facing the US national balance sheet, and the failure of Copenhagen, it is really one of the few win-win solutions out there.

I think economists, even the likes of Greg Mankiw would agree.

The art of a decade

2009-12-21T21:55:00.003Z

As we wrap up the first decade of the 21st century, there is some interesting (albeit inevitable) thinking about what were the trends that defined the last 10 years.

A very nice article in the WSJ highlights the “un-trend”, the lack of a single artistic trend that identifies, defines and shapes our dearly departed decade. The writer attributes this to the inability of a critical mass to form around a single thought or movement, similar to what may have formed in artistic centers this time last century…

The key factor in stylistic evolution was geographical concentration: One of the reasons that so many turn-of-the-century painters embraced cubism was that an unusually high percentage of them lived in Paris and knew one another, just as jazz took shape in New Orleans rather than Detroit.

Another problem is a coherent mass media that once helped define trends way back when…

Would Andy Warhol have become an art-world superstar if magazines like Time hadn't proclaimed that he "best plays the part of what a pop artist might expectably be"? I doubt it, just as I doubt that The Beatles would have taken America by storm without the help of Ed Sullivan.

I made a similar point about the lack of an authoritative voice in the mass media when I contemplated the next Cronkite

The main argument I have against this article is that it is too soon to make a judgment that there is no artistic trend to define Decade: 1, Century: 21. I suspect that the various romanti-cubi-surreal-isms that we assign other eras were only obvious in retrospect, after the decade had well passed-on.

The Economist makes the point that the real winner is the blockbuster, which is still able to corral people to one place around one screen, but these blockbusters do not a trend define. (Can’t find the link now, just go to Economist.com and hunt around for the link if you’re interested.)

We are living in an era of fractured audiences and fractured art. What will be interesting is that someday (maybe in this decade) someone will be able to present a huge big (and sustainable) idea across the fractured mediascape.

The word “sustainable” is important because right now we get a lot of huge ideas on our Facebooktwitteryoutube page, that are big, exciting but ultimately fleeting (Susan Boyle anyone… and yes, I know she has an album out).

So who will present this huge multiplatform idea that stays with us? I have no idea, but it will happen. Just as the universe expands and contracts, so will the mediaspace. Now it is expanding across different ideas, technologies and genres, and that’s cool. But some sort of cosmic gravity will begin to pull that together someday and the result will be a new way of consuming all the media we’ve created.

Until that time, I’ll leave the final word with the author:

That un-trend is the only identifiable one to have emerged in contemporary American culture. As every smart pollster knows, we live in a deeply divided country, one in which not enough people agree about anything to allow artistic trends to flourish. That's neither good nor bad -- it just is. And it isn't going away.

Technology and the End of Trend

Canada's fossilized thinking....

2009-12-20T17:32:00.004Z

But Prentice says Canada didn't need to be there (Obama'a climate meeting) because it's only responsible for two per cent of the world's emissions.

Yeah, 2% of world's emissions but only 0.5% of the world's population. So Canada is a huge per capita emitter, has a huge energy sector but "no thanks" we don't need to participate in any meaningful discussions on climate change.

It is that attitude that doesn't get Canada invited to substantive talks. It is that attitude the causes Canada to slide further down the "relevant country" scale.

Lame.

Feds say they didn't stand aside in climate talks

Building a VC industry, the Israel example

2009-12-18T22:57:00.003Z

I recently participated in a conversation with one of the original architects of the Yozma initiative, which helped build the VC industry in Israel.

Here are some bullet points from that conversation:
• In the early 1990s, Israel’s government committed $100M as an LP across 10 venture funds
• The goal was to entice foreign VC funds to Israel to invest in companies and train local VC managers (funds were from US, Europe and Asia)
• The funds had the option to buy out the Israeli share within 5 years at a low rate (there was a pre-set formula, it turned out to be ~7%)
• 8 of the 10 funds were doing so well, they exercised the option
• The foreign funds had to have a local partner; the Yozma administrators had a veto over the who would be the local partner
• In only one instance did Yozma reject a candidate; in all other instances Yozma supported whichever local partner the foreign fund found
• Low taxes on foreign investors, no capital gains tax

The result was:
• Foreign funds came in with expertise to train and mentor the next generation of VC managers (this is by far the most important result)
• With the buy-out option, funds had the potential for additional upside at low risk (there were no guarantees for downside)
• In five years, the government got back $140M from their $100M investment
• Spawned about 70 new VC companies in Israel (which has since been pared down to about 35)

What also made Yozma a success was that there was a steady pipeline of companies ready to be funded, mostly coming out of the defense industry. Also, because Israel is such a small market and has hostile neighbors, companies have to think global from day one (as opposed to regional or local). This “global from day one” is also part of the philosophy that made Indian ITS companies so successful.

Rupert, you're right about the media!

2009-12-01T18:38:00.002Z

OK, if this isn't one of the horsemen of the apocalypse, I don't know what is but yes, on one point, I actually whole-heartedly agree with Rupert Murdoch.

Here is the apocalyptic point:

The key to survival, he said, lies in giving consumers content that they want in the form that they want it — whether that be on a computer screen, mobile device or e-reader — and then charging for it.

"We need to do a better job of persuading consumers that high-quality, reliable news and information does not come free," Murdoch said. "Good journalism is an expensive commodity."

Right! Give people the quality they want, in a form they want it in, at a reasonable price, paid for in a convenient way.

It's worked for other forms of entertainment and while this isn't the silver bullet to save journalism, but it is a good start.

Generating quality journalism is a difficult process and deserves to be paid for. If we're willing to pay 99 cents for a pop tune, we should be willing to pay a similar amount to maintain one of the key pillars to civil society.

Murdoch: Media must get readers to pay for online

Damn the Aid

2009-11-28T10:03:00.001Z

I was recently directed to what is probably the most damning opinion on foreign aid I’ve come across in a while (hat tip Jodi and Tracy.)

Here’s the bottom line:
Over the past 60 years at least $1 trillion of development-related aid has been transferred from rich countries to Africa. Yet real per-capita income today is lower than it was in the 1970s, and more than 50% of the population -- over 350 million people -- live on less than a dollar a day, a figure that has nearly doubled in two decades.

The point the author makes is that Africa (and I would add other developing nations) needs investment and not aid. When you accept investment, be it equity or debt, there is significant responsibility attached to provide a return. In other words, you need to make the money work so you can pay back your investors.

Hopefully the money you make with the investment is more than what you need to pay back. If so, you have economic growth and that is good.

It’s not a perfect system, but it seems to work in places like India, SE Asia and more recently in Latin America (the Economist gushed on Brazil in its cover story a few weeks back.)

I’ve touched on this point before, but my view is that the world is awash with capital trying to find its way into places like Africa. Yes, I know there is a credit crunch going on but I think the view still holds.

African countries could start by issuing bonds to raise cash. To be sure, the traditional capital markets of the U.S. and Europe remain challenging. However, African countries could explore opportunities to raise capital in more non-traditional markets such as the Middle East and China (whose foreign exchange reserves are more than $4 trillion). Moreover, the current market malaise provides an opening for African countries to focus on acquiring credit ratings (a prerequisite to accessing the bond markets), and preparing themselves for the time when the capital markets return to some semblance of normalcy.

I would also add multilateral institutions and development banks as potential partners. Yes they have been part of the problem in the past, endlessly financing non-returning projects. But there are factions within these organizations that are now demanding a return and reform for their development financing dollars, and that is a good thing.

Corporations are eager to invest in developing country as well. The problem is there aren’t any good projects to invest in. There is a lot of money sitting on the sidelines waiting for the right time to enter Africa (I’m talking about investment in things other than resource extraction).

So what is everyone waiting for? Institutional reform for one (or even institutional creation in some instances)

Governments need to attract more foreign direct investment by creating attractive tax structures and reducing the red tape and complex regulations for businesses. African nations should also focus on increasing trade; China is one promising partner. And Western countries can help by cutting off the cycle of giving something for nothing. It's time for a change.

I would disagree with the point on China. Yes, China is pouring money into Africa but it is doing so to buy up resources and it is hard to see China making the demands for reform an outside investor has to make on Africa. Recent news from Dubai may make the Middle East a less active investor as well.

Why Foreign Aid Is Hurting Africa - WSJ.com

BRIC? BIIC?

2009-11-23T22:26:00.002Z

Nouriel Roubini questions whether Russia is solid enough to be a BRIC. I have to admit, I've had the same reservation (not that anyone noticed/cared.)

He makes an case for a number of other countries that should be included in the most famous acronym in the emerging markets; Turkey, Mexico and so on. All good choices, Turkey especially.

He also makes this point:
Indonesia, moreover, has shown resilience not only economically, but also as a nation. In spite of its diverse ethnic makeup and far-flung island territory, the country has made a quick transition from military dictatorship and has recovered from myriad challenges and setbacks, including the 1997 Asian financial crisis, the tsunami in 2004, the emergence of radical Islam, and domestic unrest. While Indonesia’s per capita GDP remains low, it is a country’s potential that matters in economic affairs, and here Indonesia shines.

I couldn't agree more.

News tries to Bing Google... may get Bonged

2009-11-23T08:36:00.001Z

So play this WSJ/Bing drama out in your head (which is what I’m doing past midnight, so please forgive any fatigued leaps of logic)…

Bing pays NewsCorp some amount of money to be the exclusive search engine for its news properties, including the WSJ. It probably wouldn’t be a huge amount because Murdoch has it in for Google and being a thorn in the Googlers’ side is probably payment enough.

What happens next? WSJ traffic drops because about 75% of the searching population can’t find it? Maybe.

Or maybe other newspapers try to get a piece of the goods and start demanding either Bing or Google shell out some dough to search their sites.

If all the newspapers band together and demand payment for search from Bing or Google, that would be pretty powerful. That is a pretty big if, to assume that all media outlets would bandy together like that. Maybe the market would fracture and WSJ would go with Bing and NYT would go with Google.

Take this thought process one step farther and you have Bing as the conservative search site and Google as the liberal one. This may be stretching the thought process a bit but if this happens, it would royally suck and instead of the internet being a free forum of ideas, it would be bifurcated into two enormous echo chambers. But I digress….

Anyway, back to earth …. So Bing and Google begin to recoup their additional costs by charging advertisers a premium for placement on news related.

Of course, then some cottage industry would spring up of mirroring stories across the Net so any exclusivity to Bing or to Google would really only last a very short while. Like 2 seconds. That would lessen the incentive for advertisers to pay premium ad rates for exclusive content that isn’t really exclusive.

Anyway, you could continue to game this out back and forth in your head until you’re exhausted (as I was, when I first started this ramble.)

Bottom line, content is still king. You can play around with these funny web restrictions but ultimately, it is hard to imagine how they will work in a scalable fashion. The music industry tried all sort of “too-clever-by-half” legal and technical means to try to stop music pirating. Ultimately, they came to the realization of “hey, why don’t we give the customer what they want in a form they want it?” (epiphany courtesy Mr. Jobs)

This NewsCorp/Bing deal has the same feel to it. Instead of giving people the news in a manner and format that is of value to them (ie, that they will pay for) large companies with more money than savvies are trying to come up with ways to restrict content in the online world, which inherently defies restriction.

But then again, Rupert has shown his online chops by making MySpace such a success….

Bing Tries To Buy The News - washingtonpost.com

Climbing out of the Aid Trap

2009-11-18T07:55:00.001Z

Although I would probably disagree with Glenn Hubbard about a lot of things, I am very eager to read his new book questioning the efficacy of past international aid initiatives.

The simple truth is that billions have been spent on aid, and billions are still left in poverty. Something clearly isn’t working. I understand that Hubbard looks at the post WWII Marshall Plan for inspiration on what could be done in the 21st century to address global poverty. Interesting idea.

Here’s a great quote talking about why microfinance isn’t enough. I’ll pre-empt the quote to say that I agree. Microfinance is great in certain instances, the rural poor for example, to help people on the path to economic development. But microfinance doesn’t really help SMBs and there is a real gap in the market there. Often SMBs are too big for microfinance, but too small for a regular bank loan, so they’re stuck. Happily, this gap seems to be filling in in many countries

Microfinance can be a catalyst for entrepreneurship up to a certain stage of business development, but the businesses launched through microfinance need to develop into full-fledged small businesses if they are to promote greater economic growth. Small and medium-sized businesses are the source of growth in all countries. Eighty percent of China’s employment, for example, is in small business — not in microfinance.

The barriers to growing past micro-entrepreneurship are formidable. Starting a formally-recognized business can require months of waiting, and paying enormous fees — including bribes — as the Doing Business rankings show. An example we use in the book is Mozambique, where starting a business requires forms 12 government agencies; you also have to pay bribes to each of the 12 government employees who stamp your documents. When you have 12 stamps, you can — at last — run your business without fear of being shut down. Similar hurdles in other countries mean that micro-entrepreneurs have a very difficult time becoming a political or economic force strong enough to challenge the status quo.

The bright spot is that micro-lenders are increasingly expanding their loan programs to serve not only individuals, but also established small and medium-sized businesses. Our proposal includes provisions for supporting existing small and medium-sized businesses through microfinance institutions.

Climbing out of the Aid Trap

Woman passes 950th driving test

2009-11-06T18:53:00.001Z

Valuable lesson in persistence. She narrowly beats my record for most driving tests attempted.

BBC NEWS | Asia-Pacific | Woman passes 950th driving test

What the credit crisis should tell us about climate change

2009-08-28T05:53:00.007Z

Given how well excessive financial engineering seems to have buggered the economy, I’m amazed that there are some who advocate “climate engineering” to address the issue of global warming.

I’m all for trying out new technologies, in addition to reducing carbon emissions, as a way to try to mitigate some of the potential damage that climate change could have on the very fabric of humanity.

But thinking that there are some quick and easy gadget-driven fixes such as, and I quote: “one proposal would have boats spray seawater droplets into clouds above the sea to make them reflect more sunlight back into space” seems a little...ahem...pie-in-the-sky.

To further quote:
Some economic models find that target impossible to reach without drastic action, like cutting the world population by a third. Other models show that achieving the target by a high CO2 tax would reduce world GDP a staggering 12.9% in 2100—the equivalent of $40 trillion a year.

Some may claim that global warming will be so terrible that a 12.9% reduction in GDP is a small price to pay. But consider that the majority of economic models show that unconstrained global warming would cost rich nations around 2% of GDP and poor countries around 5% by 2100.

Right, because, as we’ve noticed with a credit crisis, economic models have served us so well.

Again, I’m not trying to be anti-intellectual here. I greatly respect the models economists do as a guide to help us think about the possible consequences of our actions. But that is all they are, models and guides, which do, and should, change as new data becomes available. I greatly respect technology as a fundamental tool for human advancement. But that is all technology is, a tool used by intelligent people, not a deus ex machina, bailing us out at the critical moment of tragedy.

In a time when we worry about how government action will have “unintended consequences” on the global economy, I’m amazed at how readily people accept the notion of climate engineering. The Earth’s climate is an infinitely more complex system than the global economy. The climate is the poster child for Chaos theory and how small perturbations can lead to enormous and unexpected results.

I defer here to Black Swan Nicholas Nassim Taleb who has had some of the most fascinating comments on our current economic crisis. Of climate change he said:

I am hyper-conservative ecologically (meaning super-Green). My position on the climate is to avoid releasing pollutants in the atmosphere, on the basis of ignorance, regardless of current expert opinion (climate experts, like banking risk managers, have failed us in the past in foreseeing long term damages and I cannot accept certainty in a certain class of nonlinear models). This is an extension of my general idea that one does not need rationalization with the use of complicated models (by fallible experts) to the edict: "do not disturb a complex system" since we do not know the consequences of our actions owing to complicated causal webs. (Incidentally, this ideas also makes me anti-war). I explicitly explained the need to “leave the planet the way we got it” .

Bjorn Lomborg: Technology Can Fight Global Warming - WSJ.com

Inversion of Statements Made During My Meeting With David Cameron

Global warming money for Africa... great idea.. in concept....

2009-08-25T22:10:00.001Z

So here's the jist of the deal:

Experts say Africa contributes little to the pollution blamed for warming, but is likely to be hit hardest by the droughts, floods, heatwaves and rising sea levels forecast if climate change is not checked.

The draft resolution, which must still be approved by the 10 leaders, called for rich countries to pay $67 billion annually to counter the impact of global warming in Africa.

Kinda makes sense, doesn't it? Africa contributed least to global warming yet they might get hit hardest, so they want something for their troubles.

Sure, who could argue that it isn’t only fair? In concept anyway….

Trying to figure out how this would be deployed in practice makes my head hurt (or maybe my head hurts from the other work I should be doing, instead of goofing off and reading the news off the Internet). As I've said here a few times, the world is not short of cash for emerging countries. Between development banks, organizations and thoughtful individuals, there is actually a lot of cash floating around.

The problem is, how do you reasonably deploy and track that cash? Therein lies the rub. As someone who spends time on issues such as this, I can say there is far more cash than deployment models out there.

I hope this global warming reimbursement idea comes with some deployment and monitoring ideas. If so, it will have a higher probability of success.

Africa wants $67 bln a year in global warming funds | U.S. | Reuters

Will there be another Cronkite?

2009-07-19T02:47:00.001Z

VentureBeat asks the interesting (if perhaps rhetorical) question of who will be the Walter Cronkite of the blogosphere. The question makes us realize for what we have gained in “democratizing” the media through online publishing, we’ve lost in credible, authoritative voices. I put “democratizing” in quotes because although blogs allow many people to come online and report/voice opinions, it also makes it far easier to tune out voices and ideas that one may not agree with.

It may be a democratization of voices (anyone can contribute) but I fear more often than not it is a ghettoization of ideas; meaning that disparate ideas are kept in various corners of the blogosphere that are visited only by people who agree and support those ideas.

So will there be a new Walter Cronkite? Probably not, because at the moment there isn’t a single online platform that has the universal reach and authority of a CBS news (back in the day.)

It is kinda like asking if anyone will sell more records that Michael Jackson. The answer is nope, because no one is making records.

Who will be the Walter Cronkite of the blogosphere? | VentureBeat

Venture capital in America: The brightest and the rest | The Economist

2009-07-15T21:52:00.001Z

Few thoughts here based on the Economist story:

Is it really “Too much money has been chasing too few great start-ups” as written in the subhead or is the problem as indicated further down the story“…much of the money has ended up in me-too companies that will not become the shining stars venture funds so badly need. All that cash has also inflated valuations of fledgling businesses, making it harder for VC funds to turn a profit on them.”

To modify the sub-head, I’m inclined to think that it is too much money chasing the same types of companies; everyone simultaneously going after Web 2.0, cleantech or whatever is sexy at the time. Potentially great companies that are not a flavor-du-jour are left behind while Paris Hilton companies (trendy but vapid) are actively sought after. (Is she still trendy… I’m so out of touch!)

Also, this is focused on the US. I think there are great VC opportunities abroad. The challenge here (as highlighted before) isn’t the lack of money or the lack of good business ideas, it is the lack of highly experienced VCs who can play the mentoring role to help local entrepreneur with great technologies build great companies.

Venture capital in America: The brightest and the rest | The Economist

Food stamps as stimulus

2009-07-07T00:01:00.001Z

I remember when the various Stimulus packages were discussed a few months ago, there was scoffing in some corners about how providing money for low income people in the form of added food stamps, unemployment insurance and so on would count as “stimulus.”

Well, here is your answer:

Mr. Kraklio now regularly takes in several hundred dollars a month from food-stamp sales, a vital new revenue stream that has allowed him to hire another assistant to help tend a cornucopia of fruits and vegetables. The new worker, in turn, spends her income in nearby stores, restaurants and gas stations.
…
Money from the program -- officially known as the Supplemental Nutrition Assistance Program -- percolates quickly through the economy. The U.S. Department of Agriculture calculates that for every $5 of food-stamp spending, there is $9.20 of total economic activity, as grocers and farmers pay their employees and suppliers, who in turn shop and pay their bills.

When rich people get more money, they tend to spend less of that incremental income because...well... they already have what they need. Having stuff and not really being in need is one of the many benefits of being rich. If you have a ton of cash, and someone gives you a bit more, you’re not going to rush out to spend it. (Or so I’m told, I have no direct experience owning a ton of cash.)

But if you’re poor, and you get access to incremental income (either through direct cash infusion or through something like food stamps that offsets an expense) you’re going to spend more of that income on other stuff you need (or want) but that you regularly couldn't afford. Poor people may have less disposable income, but they spend a greater percentage of it because they have more unfulfilled needs.

Call it trickle-up economics.

So while some of the stimulus package remains mired in bureaucracy, it is nice to see a simple, logical, economics-backed idea take shape and actually provide some real stimulus.

Boost in Food-Stamp Funding Percolates Through Economy - WSJ.com

Working on my new investment strategy

2009-07-05T08:41:00.002Z

So over the past couple of months/years, my personal finances have become a bit of a mess. I had too many accounts with too many brokers and it was too hard to tell what was going on. So some accounts got super-whacked by the recession and some got brutally-whacked. I wasn’t sure which got whacked the hardest and why so over the past little while I’ve been consolidating all the accounts into one place, so I can get a nice overview of what is going on.

I got phase 1 completed a few weeks back and now have a single view on our various retirement and retail accounts (well, sorta, no sense in going into the gory details.)

Now, what to do with what little cash remains?

The accounts are currently filled with a variety of funds but I get the sense there is a lot of overlap here. Different funds, probably covering the same parts of the market, exist in different accounts; I’m going to have to spend some time untangling and figuring out which are the funds to keep and which I should jettison. Diversity is still your friend, and I think I have a lot of redundancy.

I’ve already done a couple of moves. In one account (Roth IRA) I loaded up on a TIPS fund. Yes, I am very worried about inflation and since that account didn’t have any bonds in it, I took the TIPS mutual fund route. My wife and I have a Roth each so I don’t mind sacrificing growth on one, if I think it is a little less risky. Right now, a TIPS mutual fund sounds like the right kind of risk mitigation.

In the retail account, I went back to an old friend, EWZ (Brazil ETF.) I made pretty good money off if this ETF over the past 5-6 years. Last year I fell asleep at the wheel and got totally spanked in Oct when this ETF fell like a ton of bricks (BRICs?)

Anyway it seems to be coming back and while I’ve missed some of the early upside, there may be more to come (I hope!) I’ve always liked Brazil. It has a solid financial sector, good exposure to commodities but still pretty diversified with a strong manufacturing base as well.

In the retail account I also bought into a California Municipal Bond fund. Yes, I know the state’s finances suck but I’m counting on it not defaulting. The yield may go up on the state’s munis so that may be nice plus I’m looking for a little tax protection.

I’ll let you know as to my other moves. Basically in my other accounts (IRA, Roth IRA) I’ve got a bunch of large-cap funds, which I need to diversify away from, and a REIT, which I may keep, I’m not sure yet.

China's Super-Sovereign Reserve Currency Idea: Could the SDR Be a Reserve Currency?

2009-06-29T16:54:00.001Z

China's Super-Sovereign Reserve Currency Idea: Could the SDR Be a Reserve Currency?

This I think is one of the more interesting thoughts on China's push to SDR's as reserve currency:

"Foley: In the short term the costs to the US of losing its role as the reserve currency would be significant as it would lose seignorage benefits and ability to borrow in its own currency. In the longer term, the U.S. would benefit as it would regain some control over its currency. A central currency would make it harder for one country to get into so much debt to another. If the currency was increased along with global GDP it could provide a steady store of value."

Although bitter medicine, the US dollar losing its place as the global reserve currency could actually benefit the US economy in the long-term because it would force the US to lessen its reliance on debt and increase its savings.

Yes, that would cut consumption and lower growth rates, but the growth that does occur will be more stable and sustainable.

Microloans need macro-mentoring

2009-06-26T17:03:00.001Z

Very similar to the point I was making with C-BAM

Indeed, the nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business training performed significantly better than peers who had received loans and no financial education.

Canada and Peru are obviously two very different economies, but the point is that capital, be it microloans or big-buck Silicon Valley VC money, isn’t effective in building great businesses and fueling economic growth if there isn’t some sort of mentoring or business education to back it up.

Capital and mentoring are ying and yang, they need to work in harmony to produce a single successful business. The challenge is that while capital is relatively easy and quick to deploy in emerging markets, finding sustained, experienced, and committed mentoring on-the-ground in poor areas is very hard. People with the right knowledge and experience don’t tend to live in poverty-stricken areas. They’ve used their talents to move elsewhere in search of a better life.

In Canada, the need for mentoring is important, but less acute than in emerging markets, and C-BAM provides one easy fix. Canada is obviously a developed capitalist economy and the start-ups we’re dealing with are already staffed with highly educated and sophisticated people, so we’re starting at a huge advantage. Plus there is the benefit of being in a similar timezone as enthusiastic mentors and having ready access to technologies such as TP.

In poor rural areas, the need for mentoring is there in a big way but there is no sustainable, scalable way to provide it. I know for a fact experienced people want to help micro-enterprises and while parachuting experts in from time-to-time may be better then nothing, it isn’t a true fix.

Having spent some time bouncing around emerging markets, I can see what kind of important tool business mentoring is for development. I don’t have an answer here, maybe as internet video technology spreads farther and wider it will be easier to do C-BAM type events.

Small Business - Teaching Business Basics in the Developing World - NYTimes.com

C-BAM: Mentoring Canadian start-ups, Silicon Valley-style

2009-06-26T16:23:00.002Z

I’ve written here and elsewhere that a main problem with the start-up communities in different parts of the world (both developed and emerging) isn’t the lack of capital, it is the lack of mentoring. While it may seem counter-intuitive in this age of “credit crisis”, the world is actually flush with capital opportunities if you have the right business plan.

Aye, there’s the rub, coming up with a business plan that investors will feel comfortable with. A lot of the times you come across great ideas, interesting technologies but weak companies and inexperienced (although usually very enthusiastic) management teams.

This is where mentoring comes in. An experienced mentor can help a start-up get its business plan in order and can provide an inexperienced/enthusiastic management team with the sage advice and coaching that will calm a rattled investors’ nerves.

Enter C-BAM!

C-BAM stands for Canada-Bay Area Mentoring (goofy name I know, it was the best I could come up with at the time) and the goal is to provide some Silicon Valley style advice to promising start-ups up in Canada.

The program is exciting to me because it uses technology to bring business mentoring to a whole new level. Although this is not a Cisco event, we used Cisco’s Telepresense (TP) to link up mentors in the Bay Area and start-ups in Canada (in our first instance, in Ottawa.) The start-ups pitched their companies via TP and got real-time feedback from a super group of experienced Canadian Bay Area-based executives and VCs.

(If you think there aren’t a lot of fantastically talented Canadian executives and VCs in the Bay Area, I challenge you to come down here, pick up a rock, throw it and try not to hit one. It can’t be done, I’ve tried.)

We had the first C-BAM last week and I think (hope) we were able to provide some real value to the participating start-ups. We looked at start-ups in the mobile, video conferencing and semiconductor optimization spaces. I have to say the companies were far more sophisticated than I had anticipated, so the discussions happened at a really advanced level.

We still have a few kinks to work out in the overall format but we’re continuing to plan future events, so I’m sure C-BAM will get better in each iteration.

Can we adapt to climate change?

2009-06-16T18:19:00.006Z

I’ve been reading the terrific book “A Short History of Progress” and one of the more fascinating questions author Ronald Wright asks is, if people have been on the earth for 1-2 million years, how come we only developed agriculture some 10,000 years ago?

Wright’s answer, because the global climate entered a phase of unusual stability that allowed humans to nurture domestic plants and therefore create agriculture.

That’s why I’m highly skeptical of people who say we can adapt to on-going climate change. I don’t think they appreciate the scale of the devastation to humanity if climate change continues. It is not a function of wearing lighter clothes in parts of the world that get warmer or buying more umbrellas in parts fo the world that get wetter, it is about the very basis of our food supply being threatened with extinction.

"The projected rapid rate and large amount of climate change over this century will challenge the ability of society and natural systems to adapt," the report says.

Report: Climate Change Already Affecting U.S. - washingtonpost.com

Reaching out to emerging markets

2009-06-16T06:14:00.002Z

Fantastic piece inthe Globe on Canada’s need to expand its economic and commercial horizons beyond the US. This has been a refrain for some time now but the writer nicely summarizes the key points. As I deal in emerging markets investments for a large US firm this topic is of particular interest to me. At conferences and in conversations, Canada is noticeable absent from the emerging markets dialog.

Canada does not have a holistic strategy on how to engage emerging markets. I use the word “holistic” because it needs to include Canada’s foreign policy and international trade interests. It seems to me that there is a separation of church and state in Canada around foreign policy and trade. In our economically interconnected world, this separation is not a sophisticated strategy. With a relatively strong banking sector, Canada has the unique opportunity to use its national balance sheet to create economic and policy linkages in the emerging markets.

Don’t forget, the emerging markets are going through a recession because the West, a main customer, is going through a recession. But there isn’t a fundamental crisis of finance in the emerging markets as there is in the West (an ironic twist of fate, one could say.) So the emerging markets remain open to do business with whoever still has capital.

Despite current challenges, Canada still has capital, but it is not seizing the opportunity to use it and expand its economic and political influence.

Some thoughts on what the writer said:
By 2050, China and India are set to be the No. 1 and No. 3 economies in the world by GDP, and together will be larger than the G7 combined.

Yes, but the US is still #2, so let’s not get too ahead of ourselves. And if we look at GDP per capita, the US will remain number 1 for a very long time.

Moreover, the emerging patterns of global trade, travel and investment are increasingly multidirectional - from China to Africa, Brazil to India and no longer guaranteed to flow through the once dominant hubs of Europe and the United States.

Great point. All Western countries, not just Canada, need to better understand this trend.

Our competitors are cued up with active strategies and we risk losing out if we do not act quickly and with focus.

The US and Europe have diverse strategies that engage the emerging markets with a combination of aid, expertise, commercial contacts, loans, equity investments, technology sharing, JVs, the list goes on and on. It involves national governments and companies together creating linkages in the emerging markets and using a portfolio of investments, loans and grants to win influence and business. Canada doesn’t seem to get this.

The structural advantage is we have a good story for the times. Canada's relative financial stability amidst crisis, our advanced resource markets, quiet excellence in many of the emerging 21st-century technology areas, from clean tech to agriculture, in addition to the advantage that comes from our diversity, make for a compelling story that, if marketed well, will find ready global audiences.

Agreed

Being a destination and source of trade with India is essential - but better still, we need to be part of India's strategy for Brazil. Innovative trade and corporate strategies should be focused on building these trade triangles.

Genius.. This man for PM.

An effective diversification strategy requires focusing even greater corporate and public diplomatic resources on three key markets: Latin America, China and India.

What can I add?

To send the right signal to corporate India, Canadian business needs to take the lead and support the call for a "comprehensive economic partnership agreement" - a pathway to free trade. We should start simply by focusing on free trade in services and leave the other more contentious issue like agriculture off the table.

I agree in theory, but wonder if this will work in practice. Can Canadian businesses take the lead in building these sorts of economic partnerships? Perhaps, unfortunately, business waits too long and government must lead. That seems like a more Canadian way.

We are late to the party in these emerging markets. To jump ahead in the queue, Canada needs to get ahead of its peers with a co-ordinated public diplomacy strategy enabling us to tell a compelling 21st-century Canadian story, streamlining the cacophony of messages from our various levels of governments.

…and business communities.

$80-$100 m "me toos" to bring bling to Bing

2009-06-03T18:05:00.001Z

I guess I don’t understand MSFT’s new push into search with Bing. Yes, I understand the importance of search and the value of search advertising, but I’ve used Bing and yes it is nice, yes it works well, yes it has a couple of nice features, but it seems to me to be at best an incremental improvement on what is currently out there from Yahoo and Google.

There is no earth-shattering innovation here. There is no new take on search. So I’m not sure what the big deal is. (The trivia-filled photos are nice, but it feels like they’re trying too hard to be “fun”)

Microsoft is going to spent $80-$100 million to say “look, we’re here also.” It looks like an $80-$100 million “me too” campaign.

I wish they would go back to Jerry Seinfeld, I found those ads super amusing (at least the first one in the shoe store.)

Saving grace of slow money

2009-06-02T06:00:00.001Z

With all the money being pumped into the economy from the Feds, Tom Campbell says we may be looking down the wrong end of 13% inflation in about a year, as soon as the velocity of money picks up.

Paul Krugman says “don’t worry be happy”, inflation is econo-imaginary boogeyman and a bit of inflation will pint-size the debt, anyway.

The story here is why I think the answer will lie somewhere in the middle. If there is one fundamental change that we may be facing is that Americans may begin to save more. Not Asia type of savings, but more than in the recent past. If inflation creeps up, Bernanke and co will have to jack up interest rates which will also create and incentive for increased savings.

So jacked up interest rates and increase in savings may both contribute to lessening the return of high-velocity dollars, which may in turn dampen inflation so it’ll just be high, rather than very high.

Money quote:
With income growth far outpacing spending, Americans' personal savings rate zoomed to 5.7 percent, the highest since February 1995, the Commerce Department reported Monday.

If you can't bring Silicon Valley to Canada, bring Canada to Silicon Valley!

2009-06-01T23:43:00.001Z

Through a series of “bootcamps”, the Canadian Trade Commissions in the US are helping provide guidance to Canadian start-ups on how to pitch and compete is a market as demanding as the US.

Select start-ups event get to move down into Silicon Valley for a while to establish operations and build a presence down here.

I’ve heard this process has taken some heat up in Canada because some claim this program is actually assisting the “brain drain” and creating incentives for start-ups to move out of Canada.

Rubbish! This is actually a very savvy move. What goes on in Silicon Valley cannot really be replicated elsewhere. Many programs around the world have tried, and almost all (if not all) have failed.

This program by the Trade Commissions is far more reasoned. Instead of spending all sorts of time and money attempted to re-create Silicon Valley someplace else, why not bring companies down here and let them learn from the original incarnation?

Canadian tech start-ups need access to the Valley’s ecosystem. It is not just access to capital, but access to talent, mentorship, new ideas and to customers. Companies, with one foot in Silicon Valley and one foot in Canada, are the best conduits through which some of the culture of innovation that exists down here can begin to filter north.

The local Trade Commissions realized this and through this “bootcamp” process have come up with a very creative initiative.

Will some companies move their HQs down here? Sure, probably. But they’ll also keep some functions back up in Canada and thereby create a great platform for SV/Canada exchanges.

And for the other companies that only stay down here for a short while and then head back, they’ll be newly armed with professional and commercial contacts that will help them grow their businesses.

Access to Silicon Valley means access to capital, expertise, and customers. The Trade Commissions are allowing Canadian start-ups to benefit from this access. Well done!

Canadian Technology Accelerator now open in Silicon Valley

India learning from Toronto?

2009-05-04T19:39:00.001Z

This article on US media companies beginning to favor India over China in Asia reminded me of an earlier article on the success Toronto has had in multiculturalism.

The common thread here is how important it is to be open and welcoming to outside ideas. I don't mean this as a pitch for diversity per se (although diversity in its own right is a laudable goal.) But rather to highlight that encouraging a diversity of people and of ideas is good for business, helps grow markets and can actually contribute to social cohesion. Everyone wants to support society and its institutions because they feel directly vested in their success.

India is less onerous in its demands and regulations on foreign media and as a result is seeing a great influx of new media ideas. I'm sure it is no coincidence that the Indian media landscape is one of the most dynamic on Earth right now. India is currently the source for many pop-culture innovations from movies to music to fashion.

Conceding risk capital in Canada

2009-05-04T19:30:00.001Z

Another story about a Canadian researcher being lost to the US due to budget cuts.

This shouldn't be dismissed as another example of Canada's "brain drain." Sure, Canada and many other countries will always lose talent to the US because it is a bigger market, more things are happening, and there will always be more opportunity.

But there is no reason why this trend should be exacerbated by budget cuts. Quite the opposite, money should be spent in order to stem this tide as much as possible. This isn’t a cost, it is an investment in the future (yes, I know this is clichéd)

There are two clear negative repercussions to losing R&D talent:

1) It will be more difficult to attract foreign investment, especially VC money, to fuel innovative industries. People invest risk capital in countries where they see new products and services being developed. A leading indicator for this is the relative health of the local R&D community. A non-existent community means no innovations, which mean no outside risk capital coming into Canada.

2) It threatens Canada's future as a hub for innovation. If Canada wants to diversify its economy away from just commodities, then it needs to make this sort of long term investments. The hope of Canada becoming a center for any sort of innovation will be dimmed without active R&D investing, which will lead to the commercialization of products and the creation of industries later down the line.

What is the point of creating an "urban paradise" if no one is around to enjoy it?

CATO loves multiculturalism (and Toronto, too)

2009-05-04T03:24:00.001Z

I have to admit, I was a little surprised to see such a glowing commentary on Toronto and multiculturalism from the likes of someone from the Cato Institute.

I fully support this opinion and am heartened to see more progressive views on multiculturalism migrate across the political spectrum.

As someone who left Toronto over ten years ago, I can say that every time I've returned, I've found the city more sophisticated and cosmopolitan. When I left I thought Toronto was somewhat provincial but it has improved greatly over the years.

I'm not sure it is the urban paradise this article makes it out to be, but it does a lot of things right on the immigration front. There still needs much to be done in terms of urban design and overall urban/architectural aesthetics, but that is a different story.

Happily, the article debates this central anti-immigrant argument:

Successful societies (so this argument goes) owe their liberty and prosperity to distinct institutions which, in turn, depend on the persistence and dominance of the culture that established and nurtured them. Should that culture fade—or become too diluted by the customs, religions, and tongues of outsiders—the foundation of all that is best and most attractive about that society cannot long last.

This, I would argue, is a recipe for disaster for a society, not for success. Without constant external input, a society becomes complacent and its thinking ossifies. It basically bores itself to death because it is unable to draw on new sources of thinking to spur innovation and creativity.

The greatest societies are those that stood (or stand) at the crossroads of humanity and are able to pick from and integrate the best humankind has to offer.

Glad to see that Toronto has picked up on this lesson.

Why get something for free when you can pay for it?

2009-04-16T06:15:00.001Z

Media to Google: Pay for our content

Google to media: Get stuffed, its free.

Maureen Dowd talks to Eric Schmidt about the media getting some of those Google riches for its own

He declines to pony up money, noting that newspapers could opt out of giving their content to Google free and adding, “We actually like making our own money for obviously good capitalist reasons.”

Yes, there is a crisis in the media but like so many other crises, this one is based on poor economics. Many people point to issues of the declining quality of content that is hurting the media. This is no doubt true, to a certain extent.

But more so it is because the media doesn't understand the economics of its own business in the new online world. They love Google because it drives content to their sites. They hate Google because Google, through its targeted advertising, is really the only ones making money in this transaction.

They give links to Google for free but then demand payment. Paying for something you would otherwise get free is not a wise economic decision and Google is not staffed by dummies.

For too long, the media has been giving away its content, which therefore has become increasingly commoditized. You can basically read the same story or opinion anywhere on the web. Most news sites have really very little content that is differentiated and therefore valuable.

The media will not make money by giving away content, even if it makes up for it in volume.

Apple tells music retailers how to behave

2009-04-16T05:57:00.001Z

Here is a great example of a market leader signaling to its competitors the rules of engagement. So Apple is the market leader in downloading music, right? So when it raises its prices, what should the competition do? Lower their prices in order to win over users and gain marketshare, right?

Wrong?

They just follow right along and raise their prices too! Apple goes from 99 cents to $1.29 and so does Amazon, Rhapsody and others.
The concept is simple and is illustrated so well by Bruce Greenwald and basic economic theory.

Apple rules the market for downloadable music and every competitor knows, Apple could credibly take them on if it really wanted to. So who wants to launch a margin-busting price war with Apple when you could just imitate their prices and maintain your own comfortable share of the market.

Because of its dominant position, Apple is able to set prices for the rest of the market and everyone follows in proper obedience.

This example is a great counterpoint to the magazine industry that is fragmented, without a clear leader, and totally unaware of its own value.

Rather than the industry raising prices to protect their own margins, magazines are on this destructive race for the bottom in a vain attempt to attract subscribers. In the end they just end up commoditizing their own business because they are now unable to spend in order to innovate, and they create the perception that their product is cheap and replaceable.

Canada slipping in innovation

2009-04-16T05:37:00.001Z

I’ve decried the lack of innovation in Canada before and while I (admittedly) don’t know the details of this announcement, it sends the wrong signal to the world. While most other countries are looking for ways to increase their national R&D capabilities, Canada should not be cutting its own. Not now, not in a crisis where, on the other side, innovation will be a premium.

For too long we’ve lived beyond our means financially and environmentally. If this economic crisis results in some sort (however small) of realignment of our priorities and our expenditures, we will need innovative thinking to help shape the new order.

I’ve seen Canada slip over the past few years in almost every global index of innovation. As someone who spends a great deal of time thinking about how to invest corporate funds in different countries, I can honestly say that a country’s capacity to do research and innovation is a huge criteria that impacts a decision.

For too long, it seems that Canada doesn’t really care about innovation. Now it seems that it cares even less.

Evolution of the newspaper

2009-04-15T17:59:00.003Z

Currently it is very trendy to talk about the "death of the media" but I think a more sophisticated discussion should rather focus on its evolution. Yes, it is painful for those involved and yes the result may be a media product that is quite different than what we've been used to in the past.

But then again, find me one industry that has essentially remained unchanged over the past 100 or so years (the auto industry immediately springs to mind.... great model they turned out to be.)

Hyper-local sites like the one starting in Seattle may very well be the next step in the evolution of the local paper. There are already some excellent models out there, most notably in San Diego.

Admittedly, these are non-profits at the moment but hopefully these will evolve into sustainable for-profit models. Whatever business models these non-profits may eventually come up with will probably be better than some of the questionable management decisions that are currently plaguing parts of the media industry.

The micro of magazines

2009-04-13T23:52:00.001Z

Basic microeconomics 101, when you’re competing on price, you are now in a commodity market. That’s great if you sell copper, it is not so great if you sell content.

If a magazine is trying to attract subscribers (and therefore advertisers) by slashing prices, it is a commodity magazine. Basically you’re telling the world that your content can be replaced by any other content out there, but so you’re willing to offer it cheaper.

This race to the bottom may explain part of the media’s ills. Positioning your product as a commodity is a terrible message to send to advertisers.

But it seems that people think they can rely on commodity pricing but still position themselves as a differentiated produce.

Interestingly, whether consumers pay $5 or $50 for a subscription does not affect their perception of the magazine, according to a study conducted four years ago by the media consultant Rebecca McPheters for publishers including Time Inc., Condé Nast, Hearst and Meredith.

“There was no difference between the engagement of those who paid less and those who paid more,” Ms. McPheters said in an interview.

I guess the debate will come down to how you define the word “engagement”. Maybe lining your birdcage with BusinessWeek is considered “engagement”.

Given those findings, the price a consumer pays should not matter to advertisers, since it does not affect the reader’s attitude toward the magazine, said Robert A. Sauerberg Jr., the group president for consumer marketing at Condé Nast. Mr. Sauerberg said that prices were constantly tested, and “the fact is, the pricing comes as a result of what the consumer is willing to pay.”

Or, in other words, how much they value your content. If you’re attracting subscribers only on price, there is clearly a problem with how readers value your content.
This lesson on the perils of a commodity existence isn’t lost on all publications however. One would hope that one called “The Economist” would get it right.

Even though The Economist is relatively expensive, its circulation has increased sharply in the last four years. Subscriptions are up 60 percent since 2004, and newsstand sales have risen 50 percent, according to the audit bureau.

Although, apparently you don’t really need to be that smart to figure this all out:

The subscription price for People has risen about 5 percent, to $104 a year, in the last four years. The cover price has risen 21 percent, to an average of $4.09 (including special issues, which cost more). In that time, People’s subscription and newsstand sales have both increased slightly.

In Switch, Magazines Think About Raising Prices - NYTimes.com

Bathing in Inflation?

2009-04-13T22:06:00.001Z

Taking a warm bath in all the new money floating around may feel good now, what with the frozen credit markets, but as the economy stops cooling and begins to warm up (even ever so slightly), will the rising temperatures also cause inflation to heat up. (I think this metaphor really got away from me.)

To me, this is a key point:

Meltzer says political pressure will prevent Bernanke, 55, and fellow policy makers from withdrawing liquidity quickly enough as the economy recovers. That’s similar to the pattern that occurred back in the 1970s, he says. Then-Chairman Arthur Burns allowed excessive money-supply growth because he was unable or unwilling to resist pressure from President Richard Nixon’s White House to hold down unemployment, leading to the “great inflation” of that era, he says.

A lot of floating money may make sense now, but soon the time may be upon us when we need to start drying out this extra liquidity (run-away metaphor again...really, I shouldn't quit my day job...) Hopefully a sense of pragmatism has taken over the financial ruling class and they'll be willing to take the tough decisions to cool down inflation at the first sighting.

Bernanke Bet on Keynes Has Meltzer Seeing 1970s-Style Inflation - Bloomberg.com

The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

2009-04-10T16:39:00.001Z

Quick look at the “new normal” by McKinsey. Not a lot of detail here but in the spirit of the article, here are a couple of my “new normal” predictions;

1) The economy will be more slow burn. With (somewhat) higher savings rates and (somewhat) lower consumption, the economy will be on a slower, but hopefully more sustainable and less bubbly) path

2) I don’t want to overstate the higher savings/lower consumption in the US. Yes, there will be some changes in consumption patterns but it won’t be extreme. The US is not going to turn into Asia-type supersavers and consumer credit will trickle back to fuel consumption.

3) Western/Ango-Saxon/whatever you want to call it capitalism won’t die. It won’t even be on life support. Yes, it may evolve somewhat. Yes, there may be more regulations. But the core principles will remain

4) I hope I can say the same for globalization. I don’t think there is great long-term threat to globalization but there may be bumps

The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

Homegrown Aid

2009-04-09T21:48:00.001Z

Short but compelling case for bottom-up development, meaning letting poor countries decide for themselves how to allocate development resources.

Make development results-based rather than consultant-based. I'll leave it to Jeffrey Sachs to explain far better than I could:

Rather than have Washington (Penguin: or anyone else) decide the kind of aid each country will receive, the recipient countries should be invited to prepare plans and budgets that would be reviewed by independent experts. These plans would describe the inputs needed by the farmers, the expected increase in production, how the strategy would be put into place and how much money would be required. Such plans, if described with care, could then be closely monitored by the United States and other donors to gauge results and avoid corruption.

Two international programs during the last decade, championed jointly by the United States, other governments and the Gates Foundation, have demonstrated the benefits of such a scientific, results-based aid approach: the Global Alliance for Vaccines and Immunization, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. These programs have saved millions of lives and protected hundreds of millions more from disease and infection. Here’s how they work: Low-income countries submit national action plans to the two programs, which then scrutinize the plans on their scientific, financial and management merits. If the plans are properly put into effect, recipients get more financing.

I would even take it one step farther and in certain cases, only where is makes sense, have outside investors come in to provide either loans or risk capital. When done properly (ie, this is NOT a peanut butter solution that can be spread over every problem) but when done properly, local for-profit entities working on local social problems could benefit from insights and knowledge of outside investors.

Inflation genie...

2009-04-09T20:53:00.002Z

.... we shouldn't let it out of the bottle.

Nouriel Roubini speaks and as you'd expect, the news isn't good (well, he's called Dr. Doom for a reason)
.

I see Roubini covered a lot in the Canadian press. I think his general crappy outlook on the world suits the alienated Canadian perspective.

He's the "ghost of unregulated banks present" and I think Canadian like him because he's walking justification for the regulated bank past that Canada has been through.

Earnings could throw wrench in U.S. stock rally

2009-04-07T20:08:00.001Z

Great headline.... those dang earnings are sssssooooo darn inconvenient.

Earnings could throw wrench in U.S. stock rally

Investment in addition to aid

2009-04-06T21:13:00.001Z

I’m not sure I agree with much of this WSJ article, but hidden within this anti-IDB opinion is I think a valuable point, that creating an environment to attract investment, not just aid, is key for a country’s development.

Those developing countries that are the most attractive for investment are those with a stable local market, an educated population, and those that facilitate a way to both protect and safely deploy capital.

Developing countries (especially those that don’t happen to be China or India) need to demonstrate to international investors that the government is on their side when it comes to protecting capital.

People and institutions that put money in emerging markets are not risk-takers, they are in fact very risk-averse (or at least, the smart ones are.) So if these risk-averse investors find a developing country where they see a reasonably safe way to deploy and grow their capital---allowing them to put money in and take it out, to find and invest in promising enterprises, to work with trustworthy local partners—then the country will not only benefit from the money that comes in, but also from the talent and know-how that often accompanies these types of investment.

Latin America Needs Economic Liberalization and Property Rights, Not Foreign Aid - WSJ.com

Missed the last rally...?

2009-04-03T21:42:00.001Z

...Don't worry, it probably won't last.

The market has been a lousy predictor. People used to say that the stock market predicted 12 out of the last nine recessions. This time, it predicted six out of the last zero economic recoveries. Every time there was a rally, and then the macro[economic] news, the earning news, the financial news was worse, and the market touched a new low.

reportonbusiness.com: A big bear: Markets 'way too optimistic'

Don't worry be happy... or maybe not

2009-04-03T19:40:00.002Z

I love John Authers... he sorta reminds me of a British, slightly too earnest David Gergen.

Anyways, I'm always looking for some good news in the economy and John provides a bit for us here. Or maybe not... wait to the end when he at the last second puts things into some sort of historical context and suggests we may be more screwed than ever.

Short View: Happy Days

A Checklist for Everyday Investing

2009-03-27T21:42:00.001Z

Simple advice from Columbia GSB

Public Offering : Post : A+Checklist+for+Everyday+Investing

The recession's Churchillian moment?

2009-03-19T00:33:00.001Z

To quote Churchill

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

Or, in econospeak:

"I don't think that this is the beginning of a recovery. It's the beginning of a much slower pace of decline," said Ethan Harris, an economist with Barclays in New York. "You've got to walk before you run."

U.S. economy shows signs of crawling out of hole | Reuters

The secret of beating Google

2009-03-12T23:41:00.001Z

NYTimes highlights a key challenge of trying to use technology to beat Google. Sure, other search engines may come up with different, new and maybe by some standard, better technology, but what they won't have is Google's stickiness. Google isn't so much a search engine as it is a sense of habit.

Even though other search engines are one click away, part of Google's competitive advantage is that have managed to create a psychological bond with consumers that keeps them hooked.

Here's part of the NYT's take on the issue:
More important, successful companies succeed for many reasons in addition to the quality of their products. When a technology start-up begins to do well, it is like a snowball rolling downhill, as technology, packaging, marketing, sales, customers, developers, brand reputation and a lot of luck bind together to create momentum that then feeds on itself.

Back to Microsoft: There are lots of people who believe that there are better operating systems available today than Windows. The question is, how very much better do they have to be, and what else needs to happen, to unwind the self-reinforcing ecosystem that lets Microsoft dominate the PC business? Windows now is just one of Microsoft’s products.

Better Search Doesn’t Mean Beating Google - Bits Blog - NYTimes.com

Different ideas of value

2009-03-06T03:03:00.003Z

So CalTrain has introduced the new 8-ride ticket to replace the old 10-ride tickets. Here is a direct quote I got from some of their marketing material:

"Like the 10-ride, the 8-ride will have a 60-day expiration and have the same pricing structure so you receive the same ride value"

I guess we all have different ideas of "value", but it seems to be a very odd definition indeed when you try to say that getting 8-rides for the same price as 10-rides is "the same ride value."

As Obama bestrides the world stage, Canada has nothing to say

2009-02-04T19:41:00.002Z

Great OpEd on Canada's absent foreign policy.

Here’s a key point:
On the military side, we continue to pull more than our weight in Afghanistan. But who believes Canada will contribute significantly to shaping the future of that benighted country, or its relations with Pakistan - or Pakistan's relations with India, even though millions of South Asians have flocked to our shores?

I take this point even outside of the Afghanistan context. Canada’s immigrant population is a huge and valuable resource. We should be tapping newly arrived and first generation immigrant Canadians to help the country forge stronger political, economic, trade and security ties with their home countries.

And I think the article lets Canadian foreign policy off a little easy. Sure, the musical chairs that is the government has put a strain on trying to develop a coherent long-term foreign policy; but I think the problem is deeper than that. I think there is a fundamental lack of vision on what a Canadian foreign policy should look like.

In a globalized world (and the nature of global intertwined economy could not be more clear as it is now) foreign policy is not just a tool of diplomacy and security. Foreign policy plays a key role in trade and economic growth. A new vision is needed to bring Canada our of its Lester Pearson “we’re the world’s peacekeepers” view on our foreign policy (which was never true anyway) to a more sophisticated vision that encapsulates the complex relation between economics, technology and security.

Canada's old economy vs new economy

2009-01-16T17:38:00.001Z

Old Economy:
Canada's oil bust | A sticky ending for the tar sands | The Economist

New Economy:
Better Place to create electric car infrastructure in Canada

Oil, of course will come back... this price drop is temporary and as we work through this recession demand and prices will rise; and there will probably be more EV company flame-outs than huge sucesses (although Better Place looks promising).

Don't get me wrong, I have no illusions that Canada's economy will totally evolve from a resource-based one to an R&D-based one (although that would be nice.) But any investment the country makes in bits and bytes is more sustainable, more forward thinking and is more in keeping with developing a 21st century economy than any investment in rocks and trees.

The joys of deflation

2008-12-17T19:11:00.001Z

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.

Canada escapes recession?

2008-11-21T00:10:00.003Z

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

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

2008-09-29T07:36:00.001Z

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

Canada didn't invest, so now it must pay

2008-09-14T08:34:00.001Z

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

As Food Prices Soar, Brazil and Argentina React in Opposite Ways - NYTimes.com

2008-08-28T07:12:00.000Z

As Food Prices Soar, Brazil and Argentina React in Opposite Ways - NYTimes.com

Entrepreneurship | Spreading the gospel | Economist.com

2008-08-04T18:31:00.001Z

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

2008-08-04T17:41:00.001Z

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.

Brazil: The anti-globalist?

2008-07-31T18:58:00.001Z

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.

Barefisted development

2008-07-29T18:33:00.001Z

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

Telecoms in Mexico

2008-07-28T21:33:00.001Z

More competition is needed in the telecoms market in Mexico.

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

Adding the "World" in worldwide web

2008-07-28T18:48:00.001Z

It is clichéd 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

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

2008-07-15T23:03:00.001Z

...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.

Quietly, Brazil Eclipses an Ally - NYTimes.com

2008-07-07T04:30:00.001Z

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....

2008-07-07T04:19:00.001Z

... 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.

"As the auto industry goes...

2008-07-02T17:33:00.001Z

... so goes the US economy."

At least according to the old saying.

Geez, I hope not!

comScore Releases Top Latin America Web Rankings for April 2008

2008-07-01T17:18:00.001Z

More interesting data on Internet useage in LatAm

comScore Releases Top Latin America Web Rankings for April 2008

Catching up with moral hazard

2008-06-27T18:42:00.001Z

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

The economic future of my daughter: pt i

2008-06-18T08:19:00.002Z

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.

Hoping for higher rates

2008-06-11T05:05:00.001Z

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

The Latin American social networking wars: Market leader Hi5 has been growing, but so has Facebook — and Sonico? » VentureBeat

2008-06-04T01:07:00.001Z

I need to make note of this...

The Latin American social networking wars: Market leader Hi5 has been growing, but so has Facebook — and Sonico? » VentureBeat

UK and the Euro

2008-06-03T05:00:00.001Z

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

Brazil after the upgrade

2008-06-02T21:41:00.001Z

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

2008-06-02T21:23:00.001Z

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

2008-06-02T21:21:00.001Z

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

2008-06-02T17:50:00.001Z

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

7 billion development experts worldwide

2008-05-29T22:22:00.001Z

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

2008-05-29T18:15:00.001Z

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

Inflation's march...

2008-05-28T17:25:00.001Z

... 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?

2008-05-28T00:11:00.001Z

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

Tech.view | The broadband myth | Economist.com

2008-05-27T21:29:00.001Z

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

Real Time Economics : Oil Bubble? The Debate Rages

2008-05-26T19:09:00.001Z

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

2008-05-26T18:29:00.001Z

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

Energy as a demand problem, not a supply one

2008-05-25T21:13:00.001Z

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

2008-05-25T02:17:00.001Z

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

Retire on Dilbert

2008-05-23T23:25:00.001Z

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

FT.com / Markets / Insight - Insight: Life won’t be easy in the ‘nasty decade’

2008-05-20T03:55:00.001Z

And I was having such a good day....

FT.com / Markets / Insight - Insight: Life won’t be easy in the ‘nasty decade’

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

2008-05-19T17:21:00.001Z

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

Our Great Economic U-Turn - WSJ.com

2008-05-14T17:38:00.001Z

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

War on savers

2008-05-01T15:59:00.001Z

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

Buffett says recession may be worse than feared - Yahoo! News

2008-04-28T17:45:00.001Z

Just when you thought it was safe to poke your head out again.....

Buffett says recession may be worse than feared - Yahoo! News

The importance of separating globalization from politics

2008-04-25T06:14:00.001Z

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.

Food inflation and biofuels

2008-04-14T06:26:00.003Z

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?

For good and for profit

2008-04-04T21:47:00.000Z

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

Food inflation

2008-04-01T20:58:00.001Z

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.

Dollar vs. Euro

2008-03-31T16:33:00.002Z

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.

Galbraith, the new Friedman?

2008-03-28T07:38:00.001Z

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?

Consolidating the blogosphere

2008-03-19T16:53:00.002Z

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

2008-03-19T05:25:00.001Z

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.

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

2008-03-12T16:40:00.001Z

...a European friend recently asked me.

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

A Board of Advisers for Your Life - Shifting Careers - Small Business - New York Times Blog

2008-03-05T23:03:00.000Z

interestint thought

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

2008-03-04T05:23:00.001Z

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

That '70s Show - WSJ.com

2008-02-28T23:19:00.003Z

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.