Some states have revenue increases in the 20%-30% range.
From today's Wall Street Journal:
Combined state and local tax revenues rose 5.2% to $284.3 billion in the third quarter of 2010 from the same period a year ago, the Census Bureau reported Wednesday. That was a big reversal from the third quarter of 2009, when tax revenues fell by 5.4% from the year-earlier period.
States in the Red
"Revenue wise they're turning the corner," said William Fox, an economics professor at the University of Tennessee who specializes in state and local taxes. But, he said, "fiscal stress is likely to continue in many states because spending is still out of line with lower revenues."
http://online.wsj.com/article/SB10001424052970203525404576049901002799880.html?mod=ITP_pageone_1
Thursday, December 30, 2010
Wednesday, December 29, 2010
Will Beijing die of thirst?
Perhaps it will have to shrink:
Beijing Preparing For Latest Arrival Of Snow In 22 Years.
Xinhua (12/29) reports Chinese meteorologists believe "Beijing will witness the latest arrival of snow in 22 years as the previous record of late-arriving snowfall being on Dec. 28, 1988." Beijing "The city has been without rain or snow for nearly two months, and the precipitation during the flood season from Jun. 1 to Sept. 15 this year was 273 millimeters, the lowest since 1960," Guo Wenli, director of the climate center under the Beijing Municipal Bureau of Meteorology. Furthermore, "underground sources supply over two thirds of Beijing municipality's needs, and since 2004 the city has also begun drawing on 'karst' groundwater supplies 1 km or deeper below surface. Those deep underground sources, stored in porous rock, were originally set aside for use only in times of war or emergency." The city currently has projects in the work to divert water from the south to help relieve the problem.
Beijing Preparing For Latest Arrival Of Snow In 22 Years.
Xinhua (12/29) reports Chinese meteorologists believe "Beijing will witness the latest arrival of snow in 22 years as the previous record of late-arriving snowfall being on Dec. 28, 1988." Beijing "The city has been without rain or snow for nearly two months, and the precipitation during the flood season from Jun. 1 to Sept. 15 this year was 273 millimeters, the lowest since 1960," Guo Wenli, director of the climate center under the Beijing Municipal Bureau of Meteorology. Furthermore, "underground sources supply over two thirds of Beijing municipality's needs, and since 2004 the city has also begun drawing on 'karst' groundwater supplies 1 km or deeper below surface. Those deep underground sources, stored in porous rock, were originally set aside for use only in times of war or emergency." The city currently has projects in the work to divert water from the south to help relieve the problem.
Thursday, December 23, 2010
Government revenues/GDP lowest in 20 years OECD-wide
Fears of tax rises as government revenues near 20-year low, says OECD
From The Telegraph Dec 23, 2010.
Governments' tax revenues are close to a 20-year low, according to the Organisation for Economic Cooperation and Development (OECD), raising the prospect of widespread and painful tax rises.
The OECD estimates that between 2008 and 2009, tax revenues measured against economies' output fell, on average, more than one percentage point.
By Emma Rowley 6:30AM GMT 16 Dec 2010
The think-tank estimates that between 2008 and 2009, tax revenues measured against economies' output fell, on average, more than one percentage point across the 34 developed nations it covers.
The unprecedented drop dragged nations' average tax to gross domestic product (GDP) ratios - the "tax burden" - to less than 34pc, a level not seen for almost two decades.
"This is the lowest average tax burden since the early 1990s," said the OECD, blaming businesses' falling profits and tax cuts made to soften the effects of the recession.
The Paris-based body warned that many countries would now try to boost their tax revenues over and above the levels enjoyed before the financial crisis.
"These are figures that we have not seen in peacetime," said Jeffrey Owens, director of the OECD's tax policy centre, following the annual report's release.
He warned: "Any package to solve the current deficit situation in most countries will require an increase in taxation, and in many it will require tax increases that go beyond the level prior to the crisis."
In the UK, the tax-to-GDP ratio has now fallen for three consecutive years, to stand at just over 34pc in 2009, close to the region's average, according to the OECD.
Denmark last year had the highest tax burden, at more than 48pc, while Mexico had the lowest at below 18pc, preliminary figures show.
In Spain, which is struggling under huge debt, the tax burden slumped by seven percentage points of GDP from 2007 to 2009.
The OECD wants members to move away from taxes on income and profits, which could distort economies, towards taxes on consumption, such as VAT, and environmental taxes.
Despite reforms, "green" taxes to discourage pollution make up a smaller proportion of average GDP now than they did 10 years ago, according to the think-tank.
Separately, Chancellor George Osborne on Wednesday tried to play down expectations that UK taxes will be cut before the election planned for 2015. The VAT rise to 20pc coming in January was "not temporary", he said in an interview. "It can't be," Mr Osborne said. "We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit."
From The Telegraph Dec 23, 2010.
Governments' tax revenues are close to a 20-year low, according to the Organisation for Economic Cooperation and Development (OECD), raising the prospect of widespread and painful tax rises.
The OECD estimates that between 2008 and 2009, tax revenues measured against economies' output fell, on average, more than one percentage point.
By Emma Rowley 6:30AM GMT 16 Dec 2010
The think-tank estimates that between 2008 and 2009, tax revenues measured against economies' output fell, on average, more than one percentage point across the 34 developed nations it covers.
The unprecedented drop dragged nations' average tax to gross domestic product (GDP) ratios - the "tax burden" - to less than 34pc, a level not seen for almost two decades.
"This is the lowest average tax burden since the early 1990s," said the OECD, blaming businesses' falling profits and tax cuts made to soften the effects of the recession.
The Paris-based body warned that many countries would now try to boost their tax revenues over and above the levels enjoyed before the financial crisis.
"These are figures that we have not seen in peacetime," said Jeffrey Owens, director of the OECD's tax policy centre, following the annual report's release.
He warned: "Any package to solve the current deficit situation in most countries will require an increase in taxation, and in many it will require tax increases that go beyond the level prior to the crisis."
In the UK, the tax-to-GDP ratio has now fallen for three consecutive years, to stand at just over 34pc in 2009, close to the region's average, according to the OECD.
Denmark last year had the highest tax burden, at more than 48pc, while Mexico had the lowest at below 18pc, preliminary figures show.
In Spain, which is struggling under huge debt, the tax burden slumped by seven percentage points of GDP from 2007 to 2009.
The OECD wants members to move away from taxes on income and profits, which could distort economies, towards taxes on consumption, such as VAT, and environmental taxes.
Despite reforms, "green" taxes to discourage pollution make up a smaller proportion of average GDP now than they did 10 years ago, according to the think-tank.
Separately, Chancellor George Osborne on Wednesday tried to play down expectations that UK taxes will be cut before the election planned for 2015. The VAT rise to 20pc coming in January was "not temporary", he said in an interview. "It can't be," Mr Osborne said. "We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit."
Monday, December 20, 2010
Forecast 2011: Oppenheimer is hugely positive on India
Forecast 2011: Oppenheimer is hugely positive on India:
December 14, 2010 06:04 PM |
Munira Dongre
New York-headquartered full-service investment company says the Indian equity market is among very few around the world that looks poised to advance on a long-term bull phase over the next 5-10 years
Oppenheimer & Co has in a report dated 7th December made out a very positive case for investments in India’s equity markets. Its key arguments are pretty standard—“demographics, a sound medium- and long-term earnings outlook, a vastly improved policy backdrop and India’s allure at a point in history where its growth premium is most likely bound to reset at higher levels.” Another important factor it says is “the vast under-owned status of Indian equities, both at the domestic and international levels (retail and institutional).”
The US-based investment company, which also has operations in India, believes that “the Indian equity market holds the potential for annualized returns in the vicinity of 12-18% in rupee terms, and 15-21% in US dollar terms over the next 5-10-year horizon.” Oppenheimer supports its forecast, saying it expects an improvement in the inflation scenario (but the report does not state how) leading to a fall in the risk premium, and a revaluation of the rupee versus the dollar. The firm also expects a stable government, with the Congress-led UPA at the helm until 2014, to implement policy reforms.
Among other positives, Oppenheimer mentions India’s lower vulnerability to global economic shocks due to high local demand and low exports. “India is considered primarily a domestic economy—its share in world trade is a measly 1.1%, with exports constituting only 21% of its GDP.” Of course, it is debatable if at 1/5th of the GDP, exports can be considered ‘low’.
Oppenheimer bets on the usual suspects, including favourable demographics, which means a high working age population and declining dependent population. It makes a good point when it says that since there are “limited investment options (globally) for overseas investors”, India, which is one of the few economies growing at sustainable 6%+ levels, makes a good investment bet.
Oppenheimer is counting on the wallet-share shift of the Indian consumer from basic necessities to discretionary items. It cites McKinsey’s estimates which predict that discretionary spending of the Indian consumer is expected to rise to 70% of the total spending by 2025, from 52% in 2005.
Contrary to the general belief that things are going to be tough for banks going forward, Oppenheimer is quite positive on the banking sector. “We expect further loan growth pickup due to the following factors: 1) working capital requirements are likely to rise on the back of increased industrial activity and rising inflation, and 2) capital expenditure related requirements are likely to increase on account of better confidence levels. Better loan growth is likely to be positive for bank margins and asset quality.”
Oppenheimer is also upbeat about the Indian IT industry. “Even though India has a 51% market share of the off-shoring market, there is tremendous headroom for growth as the current off-shoring market is still a small part of the overall outsourcing industry. Significant opportunities exist in core vertical and geographic segments of BFSI and US, and emerging geographies and vertical markets such as Asia Pacific, retail, healthcare and government respectively. Development of these new opportunities can triple the current addressable market, and can lead to Indian IT-BPO revenues of $225 billion by 2020.”
It is also positive on the education sector, citing the large young population as the reason for this. “India ranks second in the world in population. Of India’s population, 44% is below the age of 19, making it the youngest nation in the world. This bodes extremely well for the education sector. Demand for education will continue to increase over the next decade at surprising speed, we think.” It also points out that the education sector is recession-proof.
It must be said that while education remains a foreign investor favourite thematic investment, very few stocks have given any returns. A year ago, Educomp was at Rs730 and it now trades at Rs515. NIIT, which trades at Rs53 now, was at around Rs70+ levels a year ago. Only Everonn Systems seems to have given good returns—the stock was at Rs400 levels a year ago and now trades at Rs600.
On the retail business, Oppenheimer believes that “Indian retailers also need to go through two-three more business cycles, before they achieve meaningful stability.” It remains positive on media companies since low advertising spend as a percentage of GDP means good potential. However, with huge competition, only those players with deep pockets and quality content will survive. It is positive on the auto sector as well, but expects the cost of finance to rise sharply. It believes that domestic players (Maruti, Tata Motors, Mahindra and Hyundai) are better placed than new entrants.
Oppenheimer likes the Indian travel market, which it believes “is poised for growth, given a strong domestic economy, the growth in the LCC market and a highly-fragmented lodging industry.” However, Thomas Cook, Taj GVK Hotels, Indian Hotels, Hotel Leela Ventures have given poor annual returns. Only Cox & Kings has given decent returns.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author’s own and may not necessarily represent those of Moneylife.)
December 14, 2010 06:04 PM |
Munira Dongre
New York-headquartered full-service investment company says the Indian equity market is among very few around the world that looks poised to advance on a long-term bull phase over the next 5-10 years
Oppenheimer & Co has in a report dated 7th December made out a very positive case for investments in India’s equity markets. Its key arguments are pretty standard—“demographics, a sound medium- and long-term earnings outlook, a vastly improved policy backdrop and India’s allure at a point in history where its growth premium is most likely bound to reset at higher levels.” Another important factor it says is “the vast under-owned status of Indian equities, both at the domestic and international levels (retail and institutional).”
The US-based investment company, which also has operations in India, believes that “the Indian equity market holds the potential for annualized returns in the vicinity of 12-18% in rupee terms, and 15-21% in US dollar terms over the next 5-10-year horizon.” Oppenheimer supports its forecast, saying it expects an improvement in the inflation scenario (but the report does not state how) leading to a fall in the risk premium, and a revaluation of the rupee versus the dollar. The firm also expects a stable government, with the Congress-led UPA at the helm until 2014, to implement policy reforms.
Among other positives, Oppenheimer mentions India’s lower vulnerability to global economic shocks due to high local demand and low exports. “India is considered primarily a domestic economy—its share in world trade is a measly 1.1%, with exports constituting only 21% of its GDP.” Of course, it is debatable if at 1/5th of the GDP, exports can be considered ‘low’.
Oppenheimer bets on the usual suspects, including favourable demographics, which means a high working age population and declining dependent population. It makes a good point when it says that since there are “limited investment options (globally) for overseas investors”, India, which is one of the few economies growing at sustainable 6%+ levels, makes a good investment bet.
Oppenheimer is counting on the wallet-share shift of the Indian consumer from basic necessities to discretionary items. It cites McKinsey’s estimates which predict that discretionary spending of the Indian consumer is expected to rise to 70% of the total spending by 2025, from 52% in 2005.
Contrary to the general belief that things are going to be tough for banks going forward, Oppenheimer is quite positive on the banking sector. “We expect further loan growth pickup due to the following factors: 1) working capital requirements are likely to rise on the back of increased industrial activity and rising inflation, and 2) capital expenditure related requirements are likely to increase on account of better confidence levels. Better loan growth is likely to be positive for bank margins and asset quality.”
Oppenheimer is also upbeat about the Indian IT industry. “Even though India has a 51% market share of the off-shoring market, there is tremendous headroom for growth as the current off-shoring market is still a small part of the overall outsourcing industry. Significant opportunities exist in core vertical and geographic segments of BFSI and US, and emerging geographies and vertical markets such as Asia Pacific, retail, healthcare and government respectively. Development of these new opportunities can triple the current addressable market, and can lead to Indian IT-BPO revenues of $225 billion by 2020.”
It is also positive on the education sector, citing the large young population as the reason for this. “India ranks second in the world in population. Of India’s population, 44% is below the age of 19, making it the youngest nation in the world. This bodes extremely well for the education sector. Demand for education will continue to increase over the next decade at surprising speed, we think.” It also points out that the education sector is recession-proof.
It must be said that while education remains a foreign investor favourite thematic investment, very few stocks have given any returns. A year ago, Educomp was at Rs730 and it now trades at Rs515. NIIT, which trades at Rs53 now, was at around Rs70+ levels a year ago. Only Everonn Systems seems to have given good returns—the stock was at Rs400 levels a year ago and now trades at Rs600.
On the retail business, Oppenheimer believes that “Indian retailers also need to go through two-three more business cycles, before they achieve meaningful stability.” It remains positive on media companies since low advertising spend as a percentage of GDP means good potential. However, with huge competition, only those players with deep pockets and quality content will survive. It is positive on the auto sector as well, but expects the cost of finance to rise sharply. It believes that domestic players (Maruti, Tata Motors, Mahindra and Hyundai) are better placed than new entrants.
Oppenheimer likes the Indian travel market, which it believes “is poised for growth, given a strong domestic economy, the growth in the LCC market and a highly-fragmented lodging industry.” However, Thomas Cook, Taj GVK Hotels, Indian Hotels, Hotel Leela Ventures have given poor annual returns. Only Cox & Kings has given decent returns.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author’s own and may not necessarily represent those of Moneylife.)
Good entry point for Indian stocks?
The current quarter is set to become the worst in terms of performance for the Sensex index. Small cap stocks have performed even worse than the market. This appears to be a good entry point.
Sunday, December 19, 2010
Mackerel War: Iceland acts unilaterally. Tensions rise.
From the BBC:
8 December 2010 Last updated at 11:39 ET
Scottish fishermen claim Iceland's decision to increase its quota is "the height of irresponsibility"
Scottish fishermen have condemned a decision by Iceland to increase its mackerel quota unilaterally by nearly 17,000 tonnes next year.
The move is the latest twist in the so-called "mackerel wars" that have placed Iceland and the Faroe Islands at odds with the European Union and Norway.
Iceland has set a 2011 quota of 146,818 tonnes, up from 130,000 this year.
The Scottish Pelagic Fishermen's Association said the move could result in serious harm to the health of stock.
Talks aimed at resolving the row over mackerel quotas broke down earlier this month, with the Faroe Islands and Iceland at odds with the EU and Norway over catch levels for 2011.
The EU and Norway plan to catch up to 583,882 tonnes out of a recommended total allowable catch of nearly 650,000 tonnes.
Icelandic officials said the EU and Norway had "disregarded the legitimate interests" of the other coastal states.
"This move smacks of desperation and is sheer political posturing”
Ian Gatt
SPFA chief executive
Icelandic negotiator Tomas Heidar told the BBC Scotland news website his country's quota for 2011 ensured an unchanged share of 16%-17% for Iceland in mackerel fisheries next year.
He said the decision by the EU and Norway to take more than 90% of the total allowable catch recommended by scientists was "totally unjustified" and amounted to a decision to overfish mackerel next year.
He added: "The EU and Norway are not the sole owners of the mackerel stock and by taking almost all the recommended total allowable catch, they disregard the legitimate interests of the other two coastal states, Iceland and the Faroe Islands, as well as the interests of Russia."
'Damage stocks'
But both the Scottish Pelagic Fishermen's Association (SPFA) and Scottish Fisheries Secretary Richard Lochhead said they condemned Iceland's move.
SPFA chief executive Ian Gatt said the decision smacked of desperation and was "sheer political posturing".
He continued: "Considering that Iceland never even fished for the species prior to 2005, their decision to significantly increase even further an already grossly over-inflated quota is the height of irresponsibility and could do real damage to a stock that has been sustainably harvested and carefully looked after by the Scottish fleet."
Mr Lochhead said the decision by Iceland represented a "flagrant disregard" for fisheries conservation and international opinion.
He continued: "It is now more important than ever that the international community stands together and takes strong action before it is too late for one of Europe's biggest and most valuable stocks.
"We have a commitment from the EU Fisheries Commissioner Maria Damanaki to take strong action against Iceland - and the Faroes - and put in place the necessary tools to apply meaningful sanctions.
"The valuable mackerel fishery - worth £135m to the Scottish economy in 2009 - has been sustainably managed for the past 10 years by Scottish fishermen, as well as others across the EU and Norway."
He added: "Firm action is vital or the irresponsible practices of Iceland may lead to the demise of this fishery."
8 December 2010 Last updated at 11:39 ET
Scottish fishermen claim Iceland's decision to increase its quota is "the height of irresponsibility"
Scottish fishermen have condemned a decision by Iceland to increase its mackerel quota unilaterally by nearly 17,000 tonnes next year.
The move is the latest twist in the so-called "mackerel wars" that have placed Iceland and the Faroe Islands at odds with the European Union and Norway.
Iceland has set a 2011 quota of 146,818 tonnes, up from 130,000 this year.
The Scottish Pelagic Fishermen's Association said the move could result in serious harm to the health of stock.
Talks aimed at resolving the row over mackerel quotas broke down earlier this month, with the Faroe Islands and Iceland at odds with the EU and Norway over catch levels for 2011.
The EU and Norway plan to catch up to 583,882 tonnes out of a recommended total allowable catch of nearly 650,000 tonnes.
Icelandic officials said the EU and Norway had "disregarded the legitimate interests" of the other coastal states.
"This move smacks of desperation and is sheer political posturing”
Ian Gatt
SPFA chief executive
Icelandic negotiator Tomas Heidar told the BBC Scotland news website his country's quota for 2011 ensured an unchanged share of 16%-17% for Iceland in mackerel fisheries next year.
He said the decision by the EU and Norway to take more than 90% of the total allowable catch recommended by scientists was "totally unjustified" and amounted to a decision to overfish mackerel next year.
He added: "The EU and Norway are not the sole owners of the mackerel stock and by taking almost all the recommended total allowable catch, they disregard the legitimate interests of the other two coastal states, Iceland and the Faroe Islands, as well as the interests of Russia."
'Damage stocks'
But both the Scottish Pelagic Fishermen's Association (SPFA) and Scottish Fisheries Secretary Richard Lochhead said they condemned Iceland's move.
SPFA chief executive Ian Gatt said the decision smacked of desperation and was "sheer political posturing".
He continued: "Considering that Iceland never even fished for the species prior to 2005, their decision to significantly increase even further an already grossly over-inflated quota is the height of irresponsibility and could do real damage to a stock that has been sustainably harvested and carefully looked after by the Scottish fleet."
Mr Lochhead said the decision by Iceland represented a "flagrant disregard" for fisheries conservation and international opinion.
He continued: "It is now more important than ever that the international community stands together and takes strong action before it is too late for one of Europe's biggest and most valuable stocks.
"We have a commitment from the EU Fisheries Commissioner Maria Damanaki to take strong action against Iceland - and the Faroes - and put in place the necessary tools to apply meaningful sanctions.
"The valuable mackerel fishery - worth £135m to the Scottish economy in 2009 - has been sustainably managed for the past 10 years by Scottish fishermen, as well as others across the EU and Norway."
He added: "Firm action is vital or the irresponsible practices of Iceland may lead to the demise of this fishery."
Wednesday, December 15, 2010
Factoid: India customs duty receipts up 64% so far this fiscal year
Trade is apparently booming, particularly imports.
Tuesday, December 14, 2010
Irish take money out of banks. Home safe sales up 80%
Ireland: Safe Sales Soar as Worried Bank Customers Keep Money at Home
December 14th, 2010
Via: Independent:
SAFE sales are soaring as more and more worried bank customers stash their cash at home.
AIB said last month that the amount of money on deposit at the bank has fallen by €13bn since the start of the year — although it blamed most of the reduction on withdrawals by companies and financial institutions.
Another reason for the increased use of home security safes is a growing fear of burglaries because of the recession.
The AllSafes.ie company, one of the largest suppliers in the country, said its sales of home safes had increased by 80pc over the past three months compared with the same period last year.
December 14th, 2010
Via: Independent:
SAFE sales are soaring as more and more worried bank customers stash their cash at home.
AIB said last month that the amount of money on deposit at the bank has fallen by €13bn since the start of the year — although it blamed most of the reduction on withdrawals by companies and financial institutions.
Another reason for the increased use of home security safes is a growing fear of burglaries because of the recession.
The AllSafes.ie company, one of the largest suppliers in the country, said its sales of home safes had increased by 80pc over the past three months compared with the same period last year.
Quote of the Day: "Let them eat asparagus!"
From today's New York Times:
Judge Hudson, who was appointed by President George W. Bush, commented during the October hearing that the federal government’s position would give Congress “boundless” authority to force Americans “to buy an automobile, to join a gym, to eat asparagus.”
Judge Hudson, who was appointed by President George W. Bush, commented during the October hearing that the federal government’s position would give Congress “boundless” authority to force Americans “to buy an automobile, to join a gym, to eat asparagus.”
Friday, December 10, 2010
Obama Weighs Tax Overhaul in Bid to Address Debt
Obama has instructed Treasury to study the tax code to see if rates could be lowered, simplified to generate more revenue. This is a positive development since although our corporate rate is 35%, the typical company pays 9% by going through complicated and expensive contortions. A simplification would benefit everyone, particularly small businesses.
Tuesday, December 7, 2010
US bank assets/GDP only 82%, much lower than Europe
Significance: No further banking crisis in US.
Bank assets as a percentage of GDP
Luxembourg 2,461
Ireland 872
Switzerland 723
Denmark 477
Iceland 458
Netherlands 432
United Kingdom 389
Belgium 380
Sweden 340
France 338
Austria 299
Spain 251
Germany 246
Finland 205
Australia 205
Portugal 188
Canada 157
Italy 151
Greece 141
(For comparison, total banking assets in the U.S. are equal to approximately 82 percent of GDP.)
Bank assets as a percentage of GDP
Luxembourg 2,461
Ireland 872
Switzerland 723
Denmark 477
Iceland 458
Netherlands 432
United Kingdom 389
Belgium 380
Sweden 340
France 338
Austria 299
Spain 251
Germany 246
Finland 205
Australia 205
Portugal 188
Canada 157
Italy 151
Greece 141
(For comparison, total banking assets in the U.S. are equal to approximately 82 percent of GDP.)
Monday, December 6, 2010
Dramatic food inflation in India. Prices are up double digits.
An Indian economist reports:
“While headline food inflation may have come down to single digits last week, prices on the streets do not seem to be cooling off proportionally. Adding to the woes are unseasonal rains in India’s western region and floods in the southern part. Shivram—a wholesale vegetable dealer in Chennai—says that the recent floods have devastated standing crops, including vegetables, and are sending prices up. Dealer checks in Nagpur too confirm similar trends: prices of most vegetables have increased by more than 40% in the last fortnight, with the commonly-used onion leading the charge with a ~100% increase in Mumbai and Chennai.
The recent surge in oil prices—of >10% over the last month—has lead to expectations of inflation spiraling up again and amplified concerns over government finances due to the higher oil subsidy bill. “
This is bound to be extremely disruptive in a country where the poor spend most of their income on food.
“While headline food inflation may have come down to single digits last week, prices on the streets do not seem to be cooling off proportionally. Adding to the woes are unseasonal rains in India’s western region and floods in the southern part. Shivram—a wholesale vegetable dealer in Chennai—says that the recent floods have devastated standing crops, including vegetables, and are sending prices up. Dealer checks in Nagpur too confirm similar trends: prices of most vegetables have increased by more than 40% in the last fortnight, with the commonly-used onion leading the charge with a ~100% increase in Mumbai and Chennai.
The recent surge in oil prices—of >10% over the last month—has lead to expectations of inflation spiraling up again and amplified concerns over government finances due to the higher oil subsidy bill. “
This is bound to be extremely disruptive in a country where the poor spend most of their income on food.
Friday, December 3, 2010
Southern countries in Euroland uncompetitive due to strong currency
From the NYT today:
"The World Economic Forum has issued competitiveness ratings for 20 years based on increasingly sophisticated measures, including government, law, ethics, infrastructure, technology, debt and education, said its lead economist, Jennifer Blanke. Germany ranks fifth in the world of 139 countries, just after the United States. The Netherlands is 8th, France 15th, Austria 18th, Belgium 19th. But the southern economies of the euro zone are a different story. Ireland comes in at 29, Spain at 42, Portugal at 46, Italy at 48 and Greece at 83."
In the same article, Roubini says Spain, Portugal, Italy and Greece will have to reduce wages by 30% to regain competitiveness.
And the winner is? GERMANY!
http://www.nytimes.com/2010/12/03/world/europe/03divide.html
--
"The World Economic Forum has issued competitiveness ratings for 20 years based on increasingly sophisticated measures, including government, law, ethics, infrastructure, technology, debt and education, said its lead economist, Jennifer Blanke. Germany ranks fifth in the world of 139 countries, just after the United States. The Netherlands is 8th, France 15th, Austria 18th, Belgium 19th. But the southern economies of the euro zone are a different story. Ireland comes in at 29, Spain at 42, Portugal at 46, Italy at 48 and Greece at 83."
In the same article, Roubini says Spain, Portugal, Italy and Greece will have to reduce wages by 30% to regain competitiveness.
And the winner is? GERMANY!
http://www.nytimes.com/2010/12/03/world/europe/03divide.html
--
Tuesday, November 30, 2010
Chinese workers flee expensive coastal regions for the interior.
The Pearl River Delta may be 900,000 short of workers, and the other coastal regions are similar. Increasing prices and stagnant wages are making it increasingly difficult for workers to remain on the coast and many are returning to the interior.
Significance: 1. Bottlenecks are developing in China’s state-controlled industrial sector. 2. Worker discontent is growing.
http://www.nytimes.com/2010/11/30/world/asia/30china.html
Significance: 1. Bottlenecks are developing in China’s state-controlled industrial sector. 2. Worker discontent is growing.
http://www.nytimes.com/2010/11/30/world/asia/30china.html
Saturday, November 27, 2010
Industrial production growing rapidly across the globe
YOY in September 2010:
China: China: 13%, Japan 11%, Eurozone 9%, Brazil and Russia 6%, United States 5%. With the weak dollar, why is the US lagging? The answer may be anti-business government policies.
China: China: 13%, Japan 11%, Eurozone 9%, Brazil and Russia 6%, United States 5%. With the weak dollar, why is the US lagging? The answer may be anti-business government policies.
Friday, November 26, 2010
Factoid: The Mall of America has no vacant retail space for the first time in 18 years
Is this a retail recovery or the devil finding work for idle hands?
Wednesday, November 24, 2010
3rd quarter US corporate profits the highest ever (over 60 years)
Now at 11.2% of GDP. At a $1.7 trillion annual rate, corporate profits are ahead of 2007’s $1.5 trillion. The recession is over for the corporate sector.
http://www.nytimes.com/2010/11/24/business/economy/24econ.html
http://www.nytimes.com/2010/11/24/business/economy/24econ.html
Monday, November 22, 2010
India's underground economy continues to thrive
India's underground economy has maintained a steady 50% size of the reported one for three decades and now totals $640 billion at the current exchange rate. (3x that at purchasing power parity.)
Source: LiveMint of India
Source: LiveMint of India
Wednesday, November 17, 2010
China’s Achilles’ heal: Its industry is entirely state-owned and controlled.
The true private sector in China has actually shrunk in the past 10 years. The country is testing the economic limits of a socialist dictatorship. It is reasonable to expect it will eventually come to an impasse. From the WSJ, Nov. 17, 2010:
“According to China's Ministry of Finance, assets of all state enterprises in 2008 totaled about $6 trillion, equal to 133% of annual economic output that year. By comparison, total assets of the agency that controls government enterprises in France, whose dirigiste policies give it one of the biggest state sectors among major Western economies, were €539 billion ($686 billion) in 2008, about 28% of the size of France's economy.”
http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html?mod=ITP_pageone_0
“According to China's Ministry of Finance, assets of all state enterprises in 2008 totaled about $6 trillion, equal to 133% of annual economic output that year. By comparison, total assets of the agency that controls government enterprises in France, whose dirigiste policies give it one of the biggest state sectors among major Western economies, were €539 billion ($686 billion) in 2008, about 28% of the size of France's economy.”
http://online.wsj.com/article/SB10001424052748703514904575602731006315198.html?mod=ITP_pageone_0
Tuesday, November 16, 2010
Blood banks and bleeding
From today's NYT: Should the small countries let the banks go, as did Iceland?
Lincoln
“This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”
"Ireland is unlikely to let its banks fail, but it has been unable to accurately forecast its banking losses — or say whether bondholders will pay part of the bill.
"Irish banking losses are estimated at up to 80 billion euros ($109 billion), depending on the forecast used, or 50 percent of the economy. As long as housing prices continue to fall, these losses cannot be capped."
Lincoln
“This policy of saving banks at the cost of breaking the back of entire countries is a disaster,” said Daniel Gros, director for the Center for European Policy Studies in Brussels. “Ireland is beyond fiscal plans as long as one cannot see the bottom of the losses in the banking sector,” he said. The only way to “stop the rot,” he added, “would be to let the Irish banks go under” and then use the European funds to “tide over the government until markets and the economy recover.”
"Ireland is unlikely to let its banks fail, but it has been unable to accurately forecast its banking losses — or say whether bondholders will pay part of the bill.
"Irish banking losses are estimated at up to 80 billion euros ($109 billion), depending on the forecast used, or 50 percent of the economy. As long as housing prices continue to fall, these losses cannot be capped."
Sunday, November 14, 2010
James Grant argues for a return to the gold standard
From today's New York Times:
"Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra."
We will, I believe, return to the gold standard eventually. The process is already underway.
Lincoln
"Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra."
We will, I believe, return to the gold standard eventually. The process is already underway.
Lincoln
Friday, November 12, 2010
Chinese CPI dramatically understated over last 5 years, according to Beijing think tank
People are going hungry in increasing numbers in China. Be prepared for increased social unrest. Below is a report from Reuters. Lincoln
Inflation "under-statement" sparks row in China
Thu, Nov 11 2010
By Aileen Wang and Simon Rabinovitch
BEIJING (Reuters) - With price pressures on the rise in China, a rare public spat has broken out in government circles about whether the statistics agency is suppressing the full truth of how high inflation really is.
Many Chinese have long harboured suspicions about the quality of official inflation data, saying that it does not adequately capture soaring property prices or food costs.
But criticism took a curious turn this week when the Chinese Academy of Social Sciences, a top government think-tank in Beijing, published a research article arguing that the consumer price index had been under-stated by more than 7 percent over the past five years.
The National Bureau of Statistics, which regularly defends the quality of its output, swung into action.
"Obviously, the article's conclusion does not hold any water," Sheng Laiyun, NBS spokesman, told reporters.
The think-tank report found a gap between historical inflation figures and those that can be calculated based on the supposed weights assigned to the various components of the consumer price basket.
The inference was that the NBS might have been massaging reported data by changing weightings without informing the public.
"While only publishing the sub-indices of eight categories but not releasing changes in basket weightings, there is an opportunity to adjust the CPI figure," wrote Xu Qiyuan, author of the report.
Inflation "under-statement" sparks row in China
Thu, Nov 11 2010
By Aileen Wang and Simon Rabinovitch
BEIJING (Reuters) - With price pressures on the rise in China, a rare public spat has broken out in government circles about whether the statistics agency is suppressing the full truth of how high inflation really is.
Many Chinese have long harboured suspicions about the quality of official inflation data, saying that it does not adequately capture soaring property prices or food costs.
But criticism took a curious turn this week when the Chinese Academy of Social Sciences, a top government think-tank in Beijing, published a research article arguing that the consumer price index had been under-stated by more than 7 percent over the past five years.
The National Bureau of Statistics, which regularly defends the quality of its output, swung into action.
"Obviously, the article's conclusion does not hold any water," Sheng Laiyun, NBS spokesman, told reporters.
The think-tank report found a gap between historical inflation figures and those that can be calculated based on the supposed weights assigned to the various components of the consumer price basket.
The inference was that the NBS might have been massaging reported data by changing weightings without informing the public.
"While only publishing the sub-indices of eight categories but not releasing changes in basket weightings, there is an opportunity to adjust the CPI figure," wrote Xu Qiyuan, author of the report.
Thursday, November 11, 2010
"Justice," Chinese style
Zhao Lianhai, the parent of a child killed by contaminated milk who subsequently has campaigned for stricter food safety standards, has been sentenced to two and a half years in prison for "disrupting social harmony."
The message: No matter what happens, just keep smiling.
The message: No matter what happens, just keep smiling.
US says troops will remain in Afghanistan until at least end 2014
Suddenly dropping the 2011 withdrawal date, which has become "the beginning of a transition," Gates, Clinton and Mullen say that US troops will remain in Afghanistan "at least to the end of 2014." The White House says this is not a change in policy.
Does this change in policy have any relation to the recent Republican election gains?
http://www.nytimes.com/2010/11/11/world/asia/11military.html
Does this change in policy have any relation to the recent Republican election gains?
http://www.nytimes.com/2010/11/11/world/asia/11military.html
Wednesday, November 10, 2010
The storm is coming! Take cover.
BEIJING, Nov. 9 (Xinhua) -- The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy.
Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+ from previous AA with "negative" outlook.
The Chinese rating agency said the downgrade reflected the U.S.'s deteriorating debt repayment capability and drastic decline of the U.S. government's intention of debt repayment.
"The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.
The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors.
The Federal Reserve last week decided to buy 600 billion U.S. dollars of U.S. Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.
"The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple U.S. capability to attract dollar capital reflow.
The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the U.S. federal government's fiscal deficit and debt burden in the long term.
"In essence, the U.S. government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.
Dagong Global noted the potential overall crisis in the world caused by the U.S. dollar's depreciation would increase the uncertainty of the U.S. recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.
Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.
Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the U.S. by one level to A+ from previous AA with "negative" outlook.
The Chinese rating agency said the downgrade reflected the U.S.'s deteriorating debt repayment capability and drastic decline of the U.S. government's intention of debt repayment.
"The serious defects in the U.S. economy will lead to long-term recession and fundamentally lower the national solvency," Dagong said in a report.
The Chinese rating agency said the Federal Reserve's new round of quantitative easing would further depreciate the U.S. dollar and was entirely counter to the interest of the creditors.
The Federal Reserve last week decided to buy 600 billion U.S. dollars of U.S. Treasury securities and other assets held by banks in a bid to inject fresh funds into the economy and bring down long-term interest rates.
"The credit crisis is far from over in the United States and the U.S. economy will be in a long-term recession," Dagong Global warned in the report, adding a weakening greenback will cripple U.S. capability to attract dollar capital reflow.
The Chinese rating agency said the Fed's move would not substantially reverse the trend of increasing the U.S. federal government's fiscal deficit and debt burden in the long term.
"In essence, the U.S. government's move to devalue the dollar indicates its solvency is on the brink of collapse," said the report.
Dagong Global noted the potential overall crisis in the world caused by the U.S. dollar's depreciation would increase the uncertainty of the U.S. recovery and the United States may face much unpredictable risks in solvency in the coming one to two years.
Founded in 1994, Dagong Global is a pioneer in creating credit rating standards on industries, regions and sovereignties in China, and is also leading the credit rating market in corporate bonds, financial bonds and structured financing bonds.
Monday, November 8, 2010
Chinese inflation getting out of control
Chinese consumers are suffering great pain from rising food and property prices, as indicated by the following excerpt from the Business Times of Singapore. Increasing the value of the renminbi would help.
"Published November 8, 2010
Chinese consumers feel pinch of inflation
Woes exacerbated as wage increases lag leaps in prices of food, property
By FELDA CHAY
(SINGAPORE) China's interest rate hike may have struck economists as unexpected, but it comes at a time when domestic consumers are becoming increasingly frustrated over soaring food and property prices, and it's not just those at the lower end of the economic spectrum.
'A normal meal in the financial district can now cost 20 to 30 yuan, and when they increase prices it can go up by 10 yuan at one time,' said a lawyer working in Shanghai's Lujiazui financial district, who declined to be named.
'Basic commodities such as pork and sugar are all selling out,' he said. And vegetable prices have soared and look nowhere close to returning to earth. 'For people who are used to buying vegetables at three jiao (30 cents) and it increases to eight jiao, it's a big deal.'
According to China's National Bureau of Statistics, prices of fresh vegetables shot up 19.2 per cent in August this year from a year earlier, and annual inflation rose to 3.6 per cent in September - a 23-month high. Pushing the index up were food prices, which were 8 per cent higher than a year earlier and make up one-third of the overall consumer price index.
What has worsened the problem is that wage increases for some have lagged leaps in the prices of basic commodities."
"Published November 8, 2010
Chinese consumers feel pinch of inflation
Woes exacerbated as wage increases lag leaps in prices of food, property
By FELDA CHAY
(SINGAPORE) China's interest rate hike may have struck economists as unexpected, but it comes at a time when domestic consumers are becoming increasingly frustrated over soaring food and property prices, and it's not just those at the lower end of the economic spectrum.
'A normal meal in the financial district can now cost 20 to 30 yuan, and when they increase prices it can go up by 10 yuan at one time,' said a lawyer working in Shanghai's Lujiazui financial district, who declined to be named.
'Basic commodities such as pork and sugar are all selling out,' he said. And vegetable prices have soared and look nowhere close to returning to earth. 'For people who are used to buying vegetables at three jiao (30 cents) and it increases to eight jiao, it's a big deal.'
According to China's National Bureau of Statistics, prices of fresh vegetables shot up 19.2 per cent in August this year from a year earlier, and annual inflation rose to 3.6 per cent in September - a 23-month high. Pushing the index up were food prices, which were 8 per cent higher than a year earlier and make up one-third of the overall consumer price index.
What has worsened the problem is that wage increases for some have lagged leaps in the prices of basic commodities."
Wolfgang Schäuble on Bernanke's foible
The German finance ministry accuses the US of currency manipulation through quantitative easing (part deux). He is right; the US is consciously destroying the dollar's role as a reserve currency. This is both inevitable and necessary.
Wold Bank suggests that a return to the gold standard may be advisable
This from the FT on Saturday:
"Leading economies should consider readopting a modified global gold standard to guide currency movements, argues the president of the World Bank.
"Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says a successor is needed to what he calls the “Bretton Woods II” system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.
"Mr Zoellick, a former US Treasury official, calls for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account”. He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”
His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.
This week’s meeting of government heads in South Korea is likely to see yet more exchange rate conflict. A US plan for countries to sign up to current account targets has run into widespread opposition.
"Wolfgang Schäuble, Germany’s finance minister, has raised the temperature by describing the US economic model as being in “deep crisis” and criticising the US Federal Reserve’s decision to pump an extra $600bn into financial markets. “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their [central bank’s] printing press.”
Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks.
The original Bretton Woods system, instituted in 1945 and administered by the International Monetary Fund, the World Bank’s sister institution, comprised fixed but adjustable exchange rates linked to the value of gold. Controls to restrict destabilising shifts of capital from one economy to another buttressed it."
“The scope of the changes since 1971 certainly matches those between 1945 and 1971 that prompted the shift from Bretton Woods I to II,” Mr Zoellick writes. “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
"Leading economies should consider readopting a modified global gold standard to guide currency movements, argues the president of the World Bank.
"Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says a successor is needed to what he calls the “Bretton Woods II” system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.
"Mr Zoellick, a former US Treasury official, calls for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account”. He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”
His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.
This week’s meeting of government heads in South Korea is likely to see yet more exchange rate conflict. A US plan for countries to sign up to current account targets has run into widespread opposition.
"Wolfgang Schäuble, Germany’s finance minister, has raised the temperature by describing the US economic model as being in “deep crisis” and criticising the US Federal Reserve’s decision to pump an extra $600bn into financial markets. “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their [central bank’s] printing press.”
Although there are occasional calls for a return to using gold as an anchor for currency values, most policymakers and economists regard the idea as liable to lead to overly tight monetary policy with growth and unemployment taking the brunt of economic shocks.
The original Bretton Woods system, instituted in 1945 and administered by the International Monetary Fund, the World Bank’s sister institution, comprised fixed but adjustable exchange rates linked to the value of gold. Controls to restrict destabilising shifts of capital from one economy to another buttressed it."
“The scope of the changes since 1971 certainly matches those between 1945 and 1971 that prompted the shift from Bretton Woods I to II,” Mr Zoellick writes. “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
Wednesday, September 29, 2010
Singaporeans upbeat on death
The Lien Foundation has successfully launched its “happy coffins” campaign, with 733 coffin designs submitted from 37 countries by the dying. Said Lien Foundation CEO Lee Poh Wah: “We are turning the coffin from a supreme negative symbol of death into a creative canvas for reflection, inspiration and the positive celebration of life.” He added, somewhat ominously, “We’d also like to be a conduit for interested parties to explore further possibilities.” Bull market psychology is clearly in place in Singapore.
ADB raises Asian growth forecast to 8.2% for 2010
The Asian Development Bank has increased the forecast for Asia ex-Japan from 7.5% to 8.2%. China is forecast at 9.6%, India at 8.5%. Singapore’s forecast has been raised from 6.3% (April) to 14% (today.) (Straits Times, Sept. 29, 2010) This will lead to a gradual acceleration in Europe and the US.
Saturday, September 25, 2010
African growth ‘miracle’
Africa’s economies are expected to grow 5% this year. It is interesting that both resource-based and other countries are growing.
Net worth of American households still low
Household net worth peaked at $65.8 trillion before the recession. It bottomed at $48.8 trillion and is now $53.5 trillion. There is still a long way to go.
Asian consumers: the future engine of global growth
Workers across Asia are demanding big pay increases. (The Straits Times, Sept. 20, 2010) A massive strike in the Cambodian garment increase has followed worker rejection of a 20% pay increase; they are demanding +50%, from US$ 61/month to $93. Bangladesh’s three million garment workers have rejected an 80% increase and are striking for more. Independent trade unions are banned in Vietnam, but there have been 139 strikes so far this year. Similar stories are coming from India, China, and Indonesia.
Wednesday, September 22, 2010
Health insurance in California goes up double digits
The California Dept. of Insurance has approved increase in monthly premiums of 15% to 29%. Anthem Blue Cross’ request for a 39% increase is under review. The department attributes these increases to a number of factors, primarily the requirements of the federal health care bill. In addition to its increase, Blue Shield has announced that it is no longer guaranteeing its rates for a full year but will review them as required. http://insurancenewsnet.com/article.aspx?id=226528&type=newswires (A good health insurance plan for a young family of four is about $1500-$2000/month before the increases.)
Sunday, September 12, 2010
22% unemployment rate in China?
China’s Ministry of Human Resources and Social Security has issued a white paper reporting that the unemployment level in China is not the 4.3% reported for urban unemployment but 22% if rural populations were included. This means that 220 million of China’s 1 billion workers are without jobs. This is the first time this has been reported and the data is probably being released to reinforce the government’s view that the currency should not be revalued upward that and restrictions on Chinese exports should not be imposed. (Straits Times, September 11, 2010)
Friday, September 10, 2010
More gold bangles in Bangladesh?
The IMF just announced that it has sold 10 metric tons of gold to the central bank of Bangladesh. This adds to the 212 metric tons sold to the central banks of India, Mauritius, and Sri Lanka in the past year. They seem to like gold in South Asia more than in Washington.
India: Long term stock market outlook
There has been considerable talk in recent days about the Goldman report predicting that emerging markets will total 55% of world stock market capitalization in 2030 compared with 31% today. The largest markets are then predicted to be China, the US, and India, in that order, with China growing from today’s $5 trillion to $41 trillion (n.b. all three markets are valued at about 100% of GDP presently.) This would be an impressive 8X increase. Even more interesting, however, is the position of India as 2030’s 3rd largest market in the forecast. Since India’s population will soon be the same as China’s, and China’s demographics are much less favorable (the workforce will begin declining in 2014,) it is reasonable to think that India will play a bit of catch up. In that case, if its market capitalization reaches $17 trillion in 2030 (my estimate, assuming GDP/capita is only 25% of China’s then compared to 50% today, which may be too conservative) then the increase will be 13X from today’s $1.3 trillion. Of course, twenty years is a long time, and long term investors should remember that life on earth may be destroyed by a giant meteor collision before then, depressing valuations.
Monday, September 6, 2010
Debottlenecking, Chinese style
After the crash of a Henan Airlines plane, Chinese authorities have stumbled on the fact that over 200 commercial pilots have falsified their licenses and other requirements. In response, they have launched a probe to see if this problem is widespread. There is a severe shortage of qualified pilots in China; therefore, creative solutions are to be expected. After all, what are the chances that the copilot will actually have to fly the plane? (The Straits Times, Sept. 7, 2010)
US housing: Not cheap enough?
According to the New York Times, 5% of new federally-insured mortgages made in 2009 at the depth of the crisis and to borrowers with higher credit scores on average than in recent years are already in default. http://www.nytimes.com/2010/09/06/business/economy/06housing.html
Sunday, September 5, 2010
The end of fiat currencies - continued
In Malaysia, the Sultanate of Kelantan, one of the states, has introduced “Islamic” currency: gold dinars containing 4.25 grams of gold, and the dirham containing 3 grams of pure silver. Civil servants may choose to receive up to 25% of their salaries in dinars and dirhams. The uptake has been enthusiastic and some local merchants and cab drivers are exhibiting a preference to being paid in gold and silver coins, although they are not yet “legal tender.” (The Business Times of Singapore, September 6, 2010)
China: The Christian peril
There are about 75 million Christians in China today, up from 2.5 million thirty years ago and about the same number as members of the Chinese Communist Party. At the present rate of growth, Christians will equal over half the Chinese population in under 20 years. (special section in Straits Times, September 5, 2010)
Chinese reserves subterfuge
The composition of Chinese reserves is a state secret, so it was of considerable interest when China released its $2.45 trillion reserve composition last week. The official China Securities Journal “revealed” the composition as follows:
1. 65% US dollars
2. 26% euros
3. 5% pounds
4. 3% yen
China imports from the following countries for 2009:
1. United States $298 billions
2. Japan $229
3. Hong Kong $175
4. South Korea $157
5. Taiwan $106
6. Germany $106
Chinese reported statistics are often false, and it is reasonable to assume that the dollar holdings are overstated. (If the numbers were accurate, why would they release them?) The point China is trying to make is probably that their dollar reserves are consistent with recent years as a percentage of the total and that therefore nothing has changed. But it is widely known that China has accelerated its buying of Japanese yen and Korean bonds. It is also a buyer of gold. The Chinese are no doubt trying to support the dollar as they exit their positions.
A vice governor of the People’s Bank of China separately expressed concern about the depreciation of the country’s reserve currencies and its concentration in dollars. It has also been reported that China has been absent from recent treasury auctions, with the Fed assuming the role of biggest buyer. It looks like China is bringing its reserves more in line with its imports. This risk to the dollar is that China will cease to offset its US exports with purchases of US bonds. (source: Report in Reuters printed in The Business Times of Singapore, September 4-5, 2010)
1. 65% US dollars
2. 26% euros
3. 5% pounds
4. 3% yen
China imports from the following countries for 2009:
1. United States $298 billions
2. Japan $229
3. Hong Kong $175
4. South Korea $157
5. Taiwan $106
6. Germany $106
Chinese reported statistics are often false, and it is reasonable to assume that the dollar holdings are overstated. (If the numbers were accurate, why would they release them?) The point China is trying to make is probably that their dollar reserves are consistent with recent years as a percentage of the total and that therefore nothing has changed. But it is widely known that China has accelerated its buying of Japanese yen and Korean bonds. It is also a buyer of gold. The Chinese are no doubt trying to support the dollar as they exit their positions.
A vice governor of the People’s Bank of China separately expressed concern about the depreciation of the country’s reserve currencies and its concentration in dollars. It has also been reported that China has been absent from recent treasury auctions, with the Fed assuming the role of biggest buyer. It looks like China is bringing its reserves more in line with its imports. This risk to the dollar is that China will cease to offset its US exports with purchases of US bonds. (source: Report in Reuters printed in The Business Times of Singapore, September 4-5, 2010)
Saturday, September 4, 2010
How to succeed in business without really trying
The collapse of Kabul Bank, due largely to doling out $100’s of millions in loans that were never repaid to the persons and families of President Karzai and Vice President Fahim, many of whom have left the country, illustrates W.C. Fields’ three rules for succeeding in business:
1. Find out what they got;
2. Git it; and,
3. Git.
(http://www.nytimes.com/2010/09/03/world/asia/03kabul.html )
1. Find out what they got;
2. Git it; and,
3. Git.
(http://www.nytimes.com/2010/09/03/world/asia/03kabul.html )
Friday, September 3, 2010
Divine Intervention?
Under pressure from the American Gathering of Holocaust Survivors, the Mormon Church has just agreed to refrain from converting posthumously those killed in the Holocaust. (New York Times: http://www.nytimes.com/2010/09/02/us/02brfs-MORMONSHOLOC_BRF.html)
The Rastafarians, meanwhile, have made no such demands and are relying on the spirit of Emperor Haile Selassie to help their dead keep the faith. On the other hand, the liberal United Church of Christ believes that their dear departed should be allowed to choose their own religion, arguing that they have more information.
The Rastafarians, meanwhile, have made no such demands and are relying on the spirit of Emperor Haile Selassie to help their dead keep the faith. On the other hand, the liberal United Church of Christ believes that their dear departed should be allowed to choose their own religion, arguing that they have more information.
Thursday, September 2, 2010
Are Americans abroad becoming financial pariahs?
The Business Times of Singapore reported on Sept. 2 that that US tax investigators have set up an office in Hong Kong and are in Singapore to set up one here “as they tighten the noose around US citizens and Asian green card holders. . . as part of increasing scrutiny of Asia-based financial institutions and individuals for tax evasion.” The article added that many financial institutions are dealing with this by simply refusing to deal with American citizens.
Wednesday, September 1, 2010
Another reason to worry about the US$
The Wall Street Journal says: “But China is shifting some of its $2.4 trillion in reserves into Japanese yen and Korean won, which in part explains the recent runup in those currencies.”
Monday, August 23, 2010
The rising risk of a global trade war
Michael Pettis, whom some of you may remember as head of Bear Stearns Asset Management emerging market debt product and who is now a professor of finance in Peking, warned in today’s FT of the growing risk of a trade war. He fears that if the big exporters like China, Germany and Japan don’t increase imports and consumption, then the trade deficit countries like the US, Spain, Italy and Greece will react with import controls. “Other economies must absorb a large share of the European shock – or the US will be forced into tariffs and import quotas.”
This reminded me of the conversation I had with the CIO of a Boston-based institutional money manager on Friday. He talked about the rising force of “localization,” by which people look after their interests on the local level rather than on a broader one. Also, at a recent talk in Cambridge, MA, Nassim Nicholas Taleb, who focuses on fragility, noted that the most efficient system is not necessarily the most robust. For example, because the power grid in New England is very reliable, no one has emergency generators, so a power cutoff would be far more disruptive here than one in Baghdad, where people and businesses have localized their power supplies.
This increasing local focus makes trade restrictions more attractive because they lead to more robust if less efficient societies.
This reminded me of the conversation I had with the CIO of a Boston-based institutional money manager on Friday. He talked about the rising force of “localization,” by which people look after their interests on the local level rather than on a broader one. Also, at a recent talk in Cambridge, MA, Nassim Nicholas Taleb, who focuses on fragility, noted that the most efficient system is not necessarily the most robust. For example, because the power grid in New England is very reliable, no one has emergency generators, so a power cutoff would be far more disruptive here than one in Baghdad, where people and businesses have localized their power supplies.
This increasing local focus makes trade restrictions more attractive because they lead to more robust if less efficient societies.
WikiDicki
On August 23, 2010 the Financial Times reported that Julian Assange of WikiLeaks had been charged with two counts of molestation and rape based on complaints by two Swedish women during the Australian’s visit to Sweden last week. The charges were withdrawn a few hours later, probably because the women reversed their claims, which I take it to mean that they groped him, which is plausible.
The end of majorities?
The recent Australian election resulted in a parliament with no majority party for the first time in sixty years. Iraq has no majority party or coalition. Italy’s ruling coalition appears to have broken up. The UK likewise has no majority party, and it looks like President Obama’s party will lose its majority in at least one of the two houses in November. Fragmentation reduces governments’ ability to make bold policy moves.
Pork belly shortage
Last week we received a package of farm produce, jams, and salsa from my brother’s place in Iowa. The tomatoes were wrapped in an August 15 edition of the Des Moines Register. The headline of the business section read “Pork belly shortage adds $1 to price of bacon.” Des Moines Cold Storage normally has 10 to 20 million pounds in inventory but now is down to 300,000. Exports are up 27% yoy. Iowa is the nation’s biggest hog producer, with an annual slaughter of 30 million head. Iowa also is the nation’s biggest consumer of bib overalls. Maybe this shortage is one reason so many workers are having trouble bringing home the bacon.
Wednesday, August 18, 2010
“US proves call centre match for India over hire costs” FT August 18, 2010
Indian call center provider Genpact says it will triple its US employee count from 1,500 today over the next two years. Wipro says half of its 110,000 strong workforce will be non-Indian in two years, from the present 39%.
US workers and executives are now cheap on a global basis in some areas.
US workers and executives are now cheap on a global basis in some areas.
Tuesday, August 17, 2010
Annals of the Great Recession, The Pine Street Inn, Boston
Debbie and I had an interesting experience yesterday. Our church is one of the supporters of the Pine Street Inn in Boston, a private philanthropy that serves about 1000 homeless people in Boston daily through its various programs and facilities. The main building is quite imposing; it is the former headquarters of the Boston Fire Department and was built in 1892 modeled on an Italian Renaissance palace in Siena.
Once each month, our church prepares the evening meal. It is cooked in the church kitchen by a team of volunteers. Debbie and I picked up the meal, as well as another volunteer Jim, in our leafy suburb and drove into Boston. (I have never done this before but one of the church ladies broke her wrist and I was pressed into service at the last minute.)
The Pine Street Inn has two sections, one for men and one for women. The “guests” arrive in the evening for dinner, then go upstairs for showers, and then spend the night. In the morning they leave, mostly to return in the evening. We served the women dinner yesterday. I might add that the facility was immaculately clean.
I had been expecting to encounter people who were somehow impaired, either physically or mentally, and some were. But mostly I encountered people whom the English used to quaintly call “distressed gentlefolk,” that is to say, people superficially like us. Some women looked as if they had come directly from the affluent suburbs. They were clean, properly dressed, polite and well-spoken. When we left, we received many “thank you’s.”
Troubling. The Great Recession is reducing some people not unlike us to indigence. This is an offense to the natural order.
Once each month, our church prepares the evening meal. It is cooked in the church kitchen by a team of volunteers. Debbie and I picked up the meal, as well as another volunteer Jim, in our leafy suburb and drove into Boston. (I have never done this before but one of the church ladies broke her wrist and I was pressed into service at the last minute.)
The Pine Street Inn has two sections, one for men and one for women. The “guests” arrive in the evening for dinner, then go upstairs for showers, and then spend the night. In the morning they leave, mostly to return in the evening. We served the women dinner yesterday. I might add that the facility was immaculately clean.
I had been expecting to encounter people who were somehow impaired, either physically or mentally, and some were. But mostly I encountered people whom the English used to quaintly call “distressed gentlefolk,” that is to say, people superficially like us. Some women looked as if they had come directly from the affluent suburbs. They were clean, properly dressed, polite and well-spoken. When we left, we received many “thank you’s.”
Troubling. The Great Recession is reducing some people not unlike us to indigence. This is an offense to the natural order.
Friday, August 13, 2010
"The gathering storm"
Yesterday, George Will wrote a column “In Netanyahu, Israel has its own Churchill.” (IBD, Aug. 12, 2010, p. A11) He pointed out that Netanyahu has two pictures in this office, one of Theodor Herzl and one of Winston Churchill. “Netanyahu,” Will writes, “his focus firmly on Iran, honors Churchill because he did not flinch from facts about gathering storms.”
About a year ago, I wrote an essay for Euromoney entitled “The hedgehog and the fox,” harkening back to Sir Isaiah Berlin’s theory that there are two types of personalities, that of the fox, who knows many things, and that of the hedgehog, who knows one big thing. Netanyahu and Ahmadinejad are hedgehogs and Obama is a fox. The one big thing Netanyahu knows is that Iran must be stopped before it has effective nuclear weapons and Ahmadinejad knows he has to have them. Assume, therefore, a 50/50 chance that Israel will attack Iran within the next year and that the US will intervene to reopen the Straits of Hormuz after Iran closes them. How should this possibility affect one’s investment policy?
About a year ago, I wrote an essay for Euromoney entitled “The hedgehog and the fox,” harkening back to Sir Isaiah Berlin’s theory that there are two types of personalities, that of the fox, who knows many things, and that of the hedgehog, who knows one big thing. Netanyahu and Ahmadinejad are hedgehogs and Obama is a fox. The one big thing Netanyahu knows is that Iran must be stopped before it has effective nuclear weapons and Ahmadinejad knows he has to have them. Assume, therefore, a 50/50 chance that Israel will attack Iran within the next year and that the US will intervene to reopen the Straits of Hormuz after Iran closes them. How should this possibility affect one’s investment policy?
“Badges? We don’t need no stinkin’ badges.”
Since Congress has not passed Cap and Trade, the Administration is planning to implement it by fiat. Last December, Environmental Protection Agency administrator Lisa Jackson classified carbon dioxide as a dangerous pollutant and asserted her authority over it under the Clean Air Act. In April, the EPA issued rules limiting greenhouse gases in automobile emissions and is preparing to do the same for power plants. Ultimately, however, the Supreme Court, which is loathe to allow any of three branches of government to impinge upon the powers of another, except for themselves of course, will stop the IPA’s coup d’état.
In the meantime: “Badges? We don’t need no stinkin’ badges.”
(Background info from Investor’s Business Daily, August 12, 2010, p. A1)
In the meantime: “Badges? We don’t need no stinkin’ badges.”
(Background info from Investor’s Business Daily, August 12, 2010, p. A1)
Thursday, August 12, 2010
The problem with polygamy
An advisor to the prime minister of Turkey has published a book in which he admits to a polygamous relationship with three women. His father-in-law, or at least one of them, Suat Kilic is a leading member of the Justice and Development Party who introduced a bill legalizing polygamy which was defeated. It is not known how he feels about his son-in-law’s espousal of his principles.
The problem with polygamy is that Nature has so ordered human life that there is an approximately the same number of men and women in every population. To make polygamy work, a man should eliminate another man of marriageable age for each additional wife he takes. This could be done by stirring up wars, of course.
http://www.nytimes.com/2010/08/11/world/europe/11briefs-TURKEY.html
The problem with polygamy is that Nature has so ordered human life that there is an approximately the same number of men and women in every population. To make polygamy work, a man should eliminate another man of marriageable age for each additional wife he takes. This could be done by stirring up wars, of course.
http://www.nytimes.com/2010/08/11/world/europe/11briefs-TURKEY.html
Tuesday, August 10, 2010
Americans buy more treasuries
“NEW YORK — For the first time since the start of the financial crisis in August 2007, US investors own more Treasuries than foreign holders.
Mutual funds, households, and banks had boosted the domestic share of the $8.18 trillion in tradable US debt to 50.2 percent as of May, according to the most recent Treasury Department data.” http://www.boston.com/business/markets/articles/2010/08/10/us_investors_buy_up_treasuries
This reflects higher domestic savings.
Mutual funds, households, and banks had boosted the domestic share of the $8.18 trillion in tradable US debt to 50.2 percent as of May, according to the most recent Treasury Department data.” http://www.boston.com/business/markets/articles/2010/08/10/us_investors_buy_up_treasuries
This reflects higher domestic savings.
Singapore economic miracle accelerates
Second quarter GDP was 18.8% yoy. Government now expects 13%-15% growth this year. Unit labor costs were down 8.8% yoy.
Portugal: 45% of electricity from renewables; national electric car recharging grid
And they said it couldn't be done. 60% of electricity from renewables by 2020. Article in NYT: http://r.smartbrief.com/resp/xFBkqGpHkHbNkryAahdnvMalUyNl?format=standard
Monday, August 9, 2010
Greek government bonds
The Wall Street Journal says the following today:
"What does Greece have to do to get a little credit from investors? Greek bonds, while off their lows, showed virtually no reaction to recent praise dished out by the International Monetary Fund. A combination of illiquidity, technical factors and binary valuation arguments are stifling the market.
"This is despite seemingly juicy returns on offer. The 30-year Greek bond hit a low on June 23 at 47% of face value, according to Tradeweb, offering a chunky 10.4% yield. The small rise since then, to 56% of face value, translates to an 18.5% capital gain. Even bonds maturing in three or four years yield 10% to 11%.
"There are good reasons, though, for the lack of action. First, for many investors, Greece is off-limits: Ratings downgrades have removed it from key European bond indexes, but it doesn't qualify to join emerging-markets indexes.
"Second, the market is illiquid. Trading volume on Greece's HDAT electronic platform was just €1.6 billion ($2.13 billion) in June, down from €27.8 billion a year earlier, according to the Bank of Greece. Buyers may fear pent-up selling pressure from banks still holding Greek debt.
"And third, shorter-dated bonds trading at prices of 70% to 80% of face value mightn't be attractive enough if an investor fears a debt restructuring. While there are good arguments that a restructuring wouldn't make sense and Greek officials rule it out, investors are concerned by the scale of potential write-offs if a default occurred, given the debt-to-GDP ratio of 130% or more.
"Niche funds with strong risk appetite may be able to take advantage. But the big money will stay away for some time yet."
Comment: I am reminded of the saying of Hecataeus of Miletus, ca. 500 BC: “What I write here is an account that I believe to be true. For the stories told by the Greeks are many and in my opinion ridiculous.”
"What does Greece have to do to get a little credit from investors? Greek bonds, while off their lows, showed virtually no reaction to recent praise dished out by the International Monetary Fund. A combination of illiquidity, technical factors and binary valuation arguments are stifling the market.
"This is despite seemingly juicy returns on offer. The 30-year Greek bond hit a low on June 23 at 47% of face value, according to Tradeweb, offering a chunky 10.4% yield. The small rise since then, to 56% of face value, translates to an 18.5% capital gain. Even bonds maturing in three or four years yield 10% to 11%.
"There are good reasons, though, for the lack of action. First, for many investors, Greece is off-limits: Ratings downgrades have removed it from key European bond indexes, but it doesn't qualify to join emerging-markets indexes.
"Second, the market is illiquid. Trading volume on Greece's HDAT electronic platform was just €1.6 billion ($2.13 billion) in June, down from €27.8 billion a year earlier, according to the Bank of Greece. Buyers may fear pent-up selling pressure from banks still holding Greek debt.
"And third, shorter-dated bonds trading at prices of 70% to 80% of face value mightn't be attractive enough if an investor fears a debt restructuring. While there are good arguments that a restructuring wouldn't make sense and Greek officials rule it out, investors are concerned by the scale of potential write-offs if a default occurred, given the debt-to-GDP ratio of 130% or more.
"Niche funds with strong risk appetite may be able to take advantage. But the big money will stay away for some time yet."
Comment: I am reminded of the saying of Hecataeus of Miletus, ca. 500 BC: “What I write here is an account that I believe to be true. For the stories told by the Greeks are many and in my opinion ridiculous.”
McMansions In The Sky
McMansions In The Sky
Currency debasement and inflation have ultimately been bad news for men of modest means. Lincoln Rathnam learns lessons from the history of Emperor Diocletian on why our present penchant for McMansions may point to an Appalachian future
According to Gavin Menzies interesting book 1434 when a Chinese fleet sailed up the Adriatic in that year, they passed by the Dalmatian coastal retirement palace of the Roman Emperor Diocletian, who reigned from 284 AD to 305 AD. I was surprised to learn that the palace had lasted for 1000 years and even more surprised to know that it is standing today. Diocletian’s palace is a largish building, about the size of Versailles. Both palaces are real, long-lasting monuments to their designers, not the fragile, pre-packaged McMansions we have recently been building.
Diocletian was a cruel but effective emperor who ended the Crisis of the Third Century, fended off barbarian hordes, and, after proclaiming himself related to the god Jupiter, launched the tenth and most brutal persecution of the Christians by the Romans. To finance these achievements he produced hyperinflation in the empire by regularly buying up coins, melting them down, and producing many more new coins with reduced precious metal content, eventually reducing the silver content of the “silver” antoninianus to 2%.
Diocletian expanded the army from 300,000 to 500,000 men and increased the size of the bureaucracy, but he protected the state and its favoured few from the negative effects of inflation by effectively tying revenues to real commodities and making annual tax reassessments. The population grew more impoverished, and many free men were reduced to serfdom as they agreed to be tied on a hereditary basis to the great estates in order to survive.
Inflation increases income inequality. Wage earners and salarymen are always playing catch-up until inflation begins to decline, when they have a chance to move ahead again. This is not a conspiracy; it is simply how the world works. Still, Diocletian’s policies allowed the empire in the West to stumble on for a couple hundred more years and in the East for another one thousand. Not bad.
So what have the life and good times of Diocletian taught us? First, I think, that inflation impoverishes everyday people or, as the chairman of BP PLC so charmingly calls them, “the small people.” (Of course, the chairman is a Swede, a very tall race, so the sobriquet may well apply from his perspective.) If we are to have big government and inflation, then it’s a good thing to be an emperor or one of the few others with pricing power, but it is in the long run worse for everyone else.
Some people might buy McMansions, but they won’t last as long as Diocletian’s, and they might find them hard to keep up. After all, we have just learned that one-in-twelve mortgages in the USA is non-performing while the delinquency rate for mortgages over $1 million is one-in-five.
Despite recent hard times, US CPI is up 27% in the past ten years using the Clinton era calculation and twice that using the pre-Clinton calculation. In this period, US GDP increased 17% in real terms while median household income was basically flat. Price rises have been persistent and insidious. Eventually, however, people become aware. This is why President Lula of Brazil has been so popular with the small people there; he has dramatically reduced inflation so they could catch up and afford to have chicken twice a week. Lula put prices and real income more in sync.
“Tarnation” is an old New England and Appalachian slang term meaning “eternal damnation.” A recent neologism has come across my desk: “intarnation”. This is when a middle class person dies and comes back as a hillbilly. It is, I believe, clearly established in history that inflation results in intarnation for the 99% of the population that does not have pricing power. It is worrisome that governments around the world engage in monetary debasement on a scale that would have impressed even Diocletian. With monetary inflation, 99% of the population is faced with “intarnation.”
Economists such as Irving Fischer and Keynes have written about the “money illusion,” which comes when people mistake changes in nominal income or costs for real changes. For example, if inflation rises 5% and wages rise in 3%, wage earners think that they are 3% richer even though they are 2% poorer, and they expand their consumption accordingly. Inflation is like the drug “soma” in Aldous Huxley’s Brave New World: it creates a false feeling of euphoria. The soma of inflation makes people feel richer and able to buy McMansions they cannot afford.
Today various experts, such as Paul Krugman, are urging further debasement of the currency through Diocletian-like monetary expansion while others, mainly in Europe, are worried about the debacle that such expansion will inevitably produce. If the former prevail, we may be in the last days of our Roman Empire. Either way, of course, life will go on, even if only through our intarnation in the next generation. Tarnation for us…too bad for them.
Monday, February 22, 2010
Taiwan 4th Q GDP Booms
Taiwan's 4th quarter was up 18% at an annual rate and over 9% yoy. China's extraordinary monetary expansion is affecting all of its close trading partners, including Korea, Japan and Taiwan. Bank loans in January in China increased at a 50% annual rate. A bust will follow the boom.
Thursday, February 18, 2010
US states' pensions underfunded by $1 trillion.
The worst state is Illinois, which is short $48 billion: http://www.nytimes.com/2010/02/18/business/economy/18pew.html
Today's New York Times also has an article describing how US retirees are becoming itinerant workers to get by: http://www.nytimes.com/2010/02/18/us/18campers.html
Today's New York Times also has an article describing how US retirees are becoming itinerant workers to get by: http://www.nytimes.com/2010/02/18/us/18campers.html
Wednesday, February 17, 2010
The Straits Times reports today that Malaysia has caned three women in a prison near KL. This is the first caning of women since independence. Still pending, I believe, is the caning of an actress caught drinking beer with her husband. Also in Malaysia, the use of the world "Allah" for God is now illegal for non-moslems, even though this is the word for "God" is Malay. Christian bibles and references to God in Christian malay-language newspapers are now punishable offenses. Malaysia continues to make progress in the direction it is going.
Sunday, February 14, 2010
Inside investment: They said it couldn’t be done
Lincoln Rathnam
Form Euromoney Magazine, Sunday, February 07, 2010
Is the money management industry – or ought it to be – facing an existential crisis?
An investment strategist at one of the big European banks was asked not long ago on one of the financial wallpaper channels if professional investors had learnt the lessons of 2008-09. "No," he replied, "they will never be able to learn such lessons because they are chasing returns over a six-month to 12-month period and returns cannot be predicted over such short time horizons."
My first reaction was to reflect that this is the kind of pessimistic thinking that made Europe what it is today, for better or worse. But, then, scepticism and pessimism have a long and honourable tradition there. One need only mention the name of Arthur Schopenhauer, who maintained that in life pain always predominates over pleasure. Schopenhauer’s disciple, Eduard von Hartmann, took this genial idea even further by positing that Schopenhauer was too optimistic.
According to von Hartmann, all is pain. What we perceive as pleasure is in reality a lesser degree of pain, which only serves to make the rest of the pain more intense by contrast. Suicide was therefore the only logical choice. But suicide is a selfish gesture. Von Hartmann advocated that the nobler course would be for all people to cooperate to bring to an end existence.
The legendary optimism of the US is quite different. In that blessed land, they believe in all sorts of things that seem unlikely or even impossible, like beating the S&P500, balancing the federal budget, and living comfortably on $20,000 a year in social security income, supplemented, of course, by bagging groceries at the local supermarket. American optimism is perhaps best exemplified by the rather homely wisdom of Detroit poet Edgar Guest (1881-1959).
Guest praised such qualities as "pluck," and "sticktoitiveness". His poem It couldn’t be done is illustrative: "Somebody said that it couldn’t be done,/But he with a chuckle replied/That ‘maybe it couldn’t,’ but he would be one/ Who wouldn’t say so till he’d tried./So he buckled right in with the trace of a grin/On his face. If he worried he hid it./He started to sing as he tackled the thing/That couldn’t be done, and he did it."
In the late 1980s, the Boston Securities Analyst Society sponsored a series of luncheon presentations entitled The wisdom of the master investors. One of the masters told a story about one of his early clients, who had come into a substantial amount of money. She gave him management discretion, asking only that the budding master let her lawyer brother know when a change was made to the portfolio.
After a number of years the brother also died and the young master took over his securities as well. He was surprised to see that the brother had been buying the same stocks and bonds whenever a change was made in the sister’s account, which saved on the management fee. The brother’s returns, however, were much better because he rarely sold securities once purchased. Like Warren Buffett, the brother focused on the buy decision and let subsequent prices take care of themselves. The manager profited
from this lesson, which is why he became a master.
Speaking of Guest’s home town, Detroit, General Motors’ interim chief executive, Edward Whitacre Jr, just announced that his position would become permanent, and he seemed extremely gratified by his decision, for which we offer heartfelt congratulations. In true Edgar Guest fashion, when life deals you lemons, down-and-out Detroit is still willing to use them to make lemonade, and Whitacre proudly announced that GM would pay back the $8.1 billion lent to it by the people of the US and Canada by mid-year. (And they said it couldn’t be done!) Of course, one cannot but wonder about the repayment of the $44 billion still on GM’s balance sheet in 2007; in the long run, if private stockholders and bondholders get nothing, to the benefit of government, the cost of capital will certainly rise as scepticism increases, not just for GM but for all securities.
So have professional investment managers and their clients given themselves an impossible goal, that of generating superior short-term returns? On the BBC many years ago a comic parodied the poet laureate of Detroit as follows: "They said it couldn’t be done./They said nobody could do it,/So I tried that thing that could be done,/And, you know... I couldn’t do it."
Had he been alive and watching the BBC at that moment, von Hartmann would have agreed and gone further to argue that what we perceived as superior performance (pleasure) is merely bad performance that is better than even worse results (pain). After all, it is sobering to realize that US equities returned only 6.7% real annualized across the entire 20th century, which is probably worse than investors wanted. While not suggesting à la von Hartmann that we bring an end to all so-called portfolio management, let us at least temper our expectations about the results it can achieve.
_____________________________________________________________________________________
Lincoln Rathnam, PhD, CFA, is an investment professional based in Singapore and Boston. In a career spanning almost 30 years he has managed equity, debt and venture capital portfolios and was a pioneer investor in emerging markets in the late 1980s.
Subscribe today:
You can order Euromoney by contacting our subscription hotline:
Call: +44 (0)20 7779 8999 (UK) or +1 212 224 3570
http://www.euromoney.com/Print.aspx?ArticleID=2388560 2/7/2010
Lincoln Rathnam
Form Euromoney Magazine, Sunday, February 07, 2010
Is the money management industry – or ought it to be – facing an existential crisis?
An investment strategist at one of the big European banks was asked not long ago on one of the financial wallpaper channels if professional investors had learnt the lessons of 2008-09. "No," he replied, "they will never be able to learn such lessons because they are chasing returns over a six-month to 12-month period and returns cannot be predicted over such short time horizons."
My first reaction was to reflect that this is the kind of pessimistic thinking that made Europe what it is today, for better or worse. But, then, scepticism and pessimism have a long and honourable tradition there. One need only mention the name of Arthur Schopenhauer, who maintained that in life pain always predominates over pleasure. Schopenhauer’s disciple, Eduard von Hartmann, took this genial idea even further by positing that Schopenhauer was too optimistic.
According to von Hartmann, all is pain. What we perceive as pleasure is in reality a lesser degree of pain, which only serves to make the rest of the pain more intense by contrast. Suicide was therefore the only logical choice. But suicide is a selfish gesture. Von Hartmann advocated that the nobler course would be for all people to cooperate to bring to an end existence.
The legendary optimism of the US is quite different. In that blessed land, they believe in all sorts of things that seem unlikely or even impossible, like beating the S&P500, balancing the federal budget, and living comfortably on $20,000 a year in social security income, supplemented, of course, by bagging groceries at the local supermarket. American optimism is perhaps best exemplified by the rather homely wisdom of Detroit poet Edgar Guest (1881-1959).
Guest praised such qualities as "pluck," and "sticktoitiveness". His poem It couldn’t be done is illustrative: "Somebody said that it couldn’t be done,/But he with a chuckle replied/That ‘maybe it couldn’t,’ but he would be one/ Who wouldn’t say so till he’d tried./So he buckled right in with the trace of a grin/On his face. If he worried he hid it./He started to sing as he tackled the thing/That couldn’t be done, and he did it."
In the late 1980s, the Boston Securities Analyst Society sponsored a series of luncheon presentations entitled The wisdom of the master investors. One of the masters told a story about one of his early clients, who had come into a substantial amount of money. She gave him management discretion, asking only that the budding master let her lawyer brother know when a change was made to the portfolio.
After a number of years the brother also died and the young master took over his securities as well. He was surprised to see that the brother had been buying the same stocks and bonds whenever a change was made in the sister’s account, which saved on the management fee. The brother’s returns, however, were much better because he rarely sold securities once purchased. Like Warren Buffett, the brother focused on the buy decision and let subsequent prices take care of themselves. The manager profited
from this lesson, which is why he became a master.
Speaking of Guest’s home town, Detroit, General Motors’ interim chief executive, Edward Whitacre Jr, just announced that his position would become permanent, and he seemed extremely gratified by his decision, for which we offer heartfelt congratulations. In true Edgar Guest fashion, when life deals you lemons, down-and-out Detroit is still willing to use them to make lemonade, and Whitacre proudly announced that GM would pay back the $8.1 billion lent to it by the people of the US and Canada by mid-year. (And they said it couldn’t be done!) Of course, one cannot but wonder about the repayment of the $44 billion still on GM’s balance sheet in 2007; in the long run, if private stockholders and bondholders get nothing, to the benefit of government, the cost of capital will certainly rise as scepticism increases, not just for GM but for all securities.
So have professional investment managers and their clients given themselves an impossible goal, that of generating superior short-term returns? On the BBC many years ago a comic parodied the poet laureate of Detroit as follows: "They said it couldn’t be done./They said nobody could do it,/So I tried that thing that could be done,/And, you know... I couldn’t do it."
Had he been alive and watching the BBC at that moment, von Hartmann would have agreed and gone further to argue that what we perceived as superior performance (pleasure) is merely bad performance that is better than even worse results (pain). After all, it is sobering to realize that US equities returned only 6.7% real annualized across the entire 20th century, which is probably worse than investors wanted. While not suggesting à la von Hartmann that we bring an end to all so-called portfolio management, let us at least temper our expectations about the results it can achieve.
_____________________________________________________________________________________
Lincoln Rathnam, PhD, CFA, is an investment professional based in Singapore and Boston. In a career spanning almost 30 years he has managed equity, debt and venture capital portfolios and was a pioneer investor in emerging markets in the late 1980s.
Subscribe today:
You can order Euromoney by contacting our subscription hotline:
Call: +44 (0)20 7779 8999 (UK) or +1 212 224 3570
http://www.euromoney.com/Print.aspx?ArticleID=2388560 2/7/2010
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