{Ok. Heads up and let me post the question. I link articles based on what I have seen in other papers as well over a period of time. Call me a news junkie for National Security and you might be correct. In either the Ft W. Star-Telegram or DMN paper issue I have seen that the United Arab Emirates is one of if not the richest country in the world. Vaguely I remember some trial going on in the U.S. connected to that government. I think there were criminal overtones and spying issues vaguely couched in other language. Remember, its been a while, I may be wrong about the nature of the law suit. Plus the investigation into the company that was going to buy the U.S. based corporation that managed security for most of the U.S. ports and coast lines. The controlling interest of the company came out of Dubai, U.A.E. For more background check with 60 minutes archives. There was an interview with the King(?) that had been modernizing everything, including putting women in the cabinet. What I remember the most about that interview was the King could go anywhere without security. Anywhere. Everybody knew he’d be ok. Or maybe everybody was paid to be security instead a handfull of people. Also the big deal there was construction. Doesn’t Donald Trump have a new hotel there? So, if Dubai and all that money is having debt problems, when will we feel the reverberations. And tell me HOW is India insulated? The proportion in the amount of people?} Ministers: No Big Dubai Fallout For India

Published on November 28, 2009by EU News Network(EUNewsNet.com and OfficialWire) CHANDIGARH, INDIA

Dubai’s debt crisis does not pose any major consequences for India, Finance Minister Pranab Mukherjee said Saturday.Speaking on the sidelines of a function in Chandigarh, Mukherjee told reporters he foresaw no “earth shaking” consequences for the country and that there is “no need to press the panic button,” the Press Trust of India reported.”The full impact of the Dubai debt crisis is yet to be assessed, but there is no need to press the panic button,” Mukherjee told PTI, adding, “first of all, the amount is small and secondly, the exposure of our banking systems to the Dubai financial systems is limited.” But, he admitted, there would likely be “some adverse effect” initially on the stock markets, as was felt Friday when the Dow Jones industrial average fell by more than 150 points after Dubai officials requested that the corporate face of the emirate, Dubai World, be allowed to skip six months of interest payments on its $59 billion in debt. Indian Overseas Affairs Minister Vayalar Ravi also assured PTI that India does not expect any mass exodus of its nationals now working in Dubai. Contact European News Network EU News Network wire@eunewsnet.com Tel: +44 (0) 758-845-6978

Dubai debt crisis hits world markets, Indian workers
It came as a shock to many, when Dubai government disclosed that it would not be able to service the 80 billion debt it has raised through Dubai World and property unit Nakheel. CJ: Mineguruji   Sat, Nov 28, 2009 23:35:58 IST Views: 1086   Comments: 1 Rate:  1.0 / 1 votes   THE DUBAI debt fiasco has not only taken the sheen off the desert El Dorado but it has also rattled the world financial markets. Big banks, financial institutions, infrastructure and real estate companies have been rattled hard as many of these  have major stake in the Emirate on the brink of a financial breakdown.  

It came as a shock to many, when Dubai government disclosed  that it would not be able to service the 80 billion debt it has raised through Dubai World and property unit Nakheel. Dubai government said that it wanted the creditors to agree to a debt standstill as it restructures Dubai World and works around the finances to pay back.   Although the Dubai government has not said that it would not be able to repay the debt but the world markets took it as a huge negative signal as they are already suffering the great American financial meltdown.  

While a large number of Indian corporates have said that they do not have a major exposure to Dubai but the debt crisis has proved to be a major dampener for the stock markets and has hit the sentiments hard.   The Dubai crisis has lead to a panic situation in the financial market as banks and financial firms lost in markets across the world. Another major negative for the Indians is the huge number of Indian labour force which will be directed affected by the Dubai financial crisis.   Indian infrastructure companies such as Punj Lloyd, DLF and other major realtors, however, have said that they do not have any exposure to Dubai. However, engineering major L&T and Bank of Baroda have strong presence in the Emirates but it is unlikely that they will suffer big problems due to the current situation.   As compared to corporates, individual Indians are more likely to be affected by the Dubai financial fiasco as 4.5 million Indians live and work in the Gulf region and they remit around 10 billion dollars every year to the country.   Dubai turmoil is likely to hit remittances and the worst affected would be Kerala, which has the maximum number of people working in Dubai and the Emirates. When Dubai sneezes Kerala catches cold and this is likely to be proved truer than ever as experts feel Dubai will face severe downturn in real estate and financial sectors, which are likely to affect remittances and jobs

One of my most recent and sustained developing interests has been in the area of economics. More and more I have found issues in this realm to thoroughly occupy my mind, especially when it comes to addressing the needs of the poor. From a Christian perspective this no doubt takes a slightly different route than it would among non-Christian economists because my concern is fundamentally driven from a believe and understanding about the created order whereas a secularist approach probably comes from a simple desire to achieve balance in a presently extremely unbalanced world. I make no apologies for the direction I choose and my commentary will be fused with my Christian belief.

All the same the observations I make refer to secular as well as Christian responses to the present economic challenge (as well as response to the Western economy in general). This is because, unsurprisingly, across the board there seems to be a dissatisfaction with the way things are and a persuasion that things need to change. This finds voice especially in the outcries expressed through the media at huge bonuses handed to bankers, and at the swindling of expenses by MPs. Enough commentary has probably been done on WordPress alone to fill several volumes and so I do not intend to make further judgment on these matters here, I simply point to them to indicate the attitude that permeates public opinion.

Most recently I have noticed a book entitled Prosperity Without Growth: Economics for a Finite Planet by Tim Jackson – which, incidentally, I came across by flicking through a copy of the Big Issue. It seemed appropriate that an article about this book appeared in a magazine sold to help support the homeless and those hard-done-by. I haven’t really noticed what the general thrust of the publication is before but this has made me somewhat penitent of my usual attitude of buying a copy if I want to “be nice” to the Big Issue man, then throwing it away when I next get it out of my bag (confession time).

I may read the book. It seems to do what it says on the tin, and according to reviews doesn’t seem to do too bad a job of it, perhaps weighing in a little heavier on the diagnosis than on the proposed solutions. You can preview it on Google Books of course, at http://books.google.com/books?id=jarKLCDcePYC&dq=prosperity+without+growth&source=gbs_navlinks_s

What has also interested me ever since about this time last year, is Christian response to the economic situation in light of the Bible. Of particular note among recent efforts to outwork Christian principles within a secular economy is that of Kim Tan, author of the recently published The Jubilee Gospel (which I am presently reading), who has had some sort of key role in the establishment of what is known as the Transformational Business Network which seeks to work in the developing world not through the means of aid, but rather through the means of resourcing and supporting enterprises in those countries so that they can begin to have their own sustainable economic environments which they will be able to operate themselves. A quick survey of their website(http://www.tbnetwork.org/home/index.php?flag1=1) seems to show that they are doing rather well.

I don’t doubt that this sort of move would begin a process which could radically reshape the global economy. Perhaps my view is over-simplistic, but it seems that where we have “developed” countries (which operate with a centralised system) providing largely only aid to “developing” nations, the latter will in a way also be subject to the moving and shaking that goes on in the centralised systems of the nations that are providing that aid. However, if you empower that country to begin to operate sustainably under its own economic model and terms, you withdraw its dependency on the former, monolithic systems which, as we’ve seen over the last year, are no less susceptible to damage for all their size.

I also have in my list of books to read a book by Kim Tan and Brian Griffiths called Fighting Poverty Through Enterprise: The case for Social Venture Capital which (from my brief glance) fairly straightforwardly outlines the purpose behind the Transformational Business Network through an analysis of present-day statistics and case studies.

If you’re wondering where this present argument is leading, the answer may be “not very far” at this stage because, as you can see, I have a fair bit of reading to do. I’m also not an economist and so all the reading I can do can only stretch as far as my spare time and my understanding will allow. However my heart is deeply interested for the sake of the poor and those who have suffered as the rich have got richer. Having had my own share of financial pressures in my time – pressures which were comparably microscopic compared to those of many who struggle in this nation alone – I have seen enough to be concerned that the treacherous imbalance of society (which as we know is not purely economical but also social) might somehow begin to be turned on its head through whatever means we might have within our grasp.

I was challenged earlier today when another man from church was sharing with a group of men that were gathered for breakfast, from Romans 12, and verse 18 where Paul exhorts “If possible, so far as it depends on you, be at peace with all men.” (NASB) Maybe it was the way he said it, but suddenly the words “if possible” rang out with new meaning and emphasis: if there is any remote chance, any slim possibility that I can see in a situation, for peace to be brought into it and lived in, then I should work to achieve that peace. And if you know anything about the Bible and the way that Jews thought from way back, “peace” would not merely have been about being friendly; the term shabbat which we know as “Sabbath”, together with the idea of shalom,  encompassed ideas of social, economic and spiritual peace and rest – a holistic peace which touched every area of human experience.

So this is what I’m going after. I’m interested also in the Jubilee as a concept in which, essentially, a national but de-centralised (or rather non-centralised as it was never central in the first place) economic system which allowed for growth and development was nevertheless “capped” and kept from growing out of control, through the regular redistribution of wealth through the cancellation of debts and restoration of property to original owners. In it too was fundamentally written the idea of rest with each Jubilee year being prescribed as a year of rest (which of course would have happened alongside the usual Sabbath years – a year of rest every seven years – also prescribed for the nation). As a whole economic model now it is obviously impossible to introduce, but its values and principles could and, according to the conviction of Kim Tan and others, do still prove to be useful.

So, apologies for the inept conclusion to this present discourse. Watch this space, as I shall hopefully keep my blog updated from time to time with my findings and feelings about this whole issue. Ultimately what I hope to achieve is to find some new and creative ways in which Christians (well and any concerned citizen) can seriously get involved in this activity of redressing the balance for the good of humanity.

Saving your business money and helping the environment

The Department for the Environment, Food and Rural Affairs (DEFRA) released a report that states that businesses in the UK could save over £6 billion by putting some easy money saving steps in place.

By managing resources efficiently small businesses could reportedly save themselves over £100,000 per year as well as help to bring down the levels of greenhouse gas emissions.

It’s also worth remembering that during a time of recession small businesses could use £100,000 in a much more useful way such as investing in sales, marketing and product development than throwing it away on utility bills.

Let’s take a brief look at how putting just a few simple steps in place can help optimise your company’s efficiency and save you money:

1. When not being used all office equipment should be switched-off. This includes overnight, weekends, bank holidays. Switching-off just one computer and monitor could save you up to £35.00 per year.

2. Switching off lights in empty rooms and using energy efficient light bulbs could save your company up to 15%.

3. Constantly dripping taps could cost your business a further £400.00 a year. So ensuring you turn taps off fully or spending a little to get a tap fixed could save you a lot of money.

4. Partnering with other businesses to recycle waste or selling it to be used as raw materials could save you 4% of your annual turnover with waste management techniques such as this.

5. Your company could save 8% on your company’s heating bill by simply turning down the thermostat by a single degree!

6. Save up to a month’s worth of fuel over a year with smarter driving techniques such as reducing load and good vehicle maintenance.

7. Invest in efficient equipment to help cut your energy, transport and water costs. It is also worth bearing in mind that the government are running an interest-free energy efficient loans through the Carbon Trust.

8. Refill inkjet cartridges instead of buying new ones. Refilling old cartridges in printers, fax machines and photocopiers is a fraction of the cost of buying them brand new. In addition to this use email where possible and if you do need to print out documents try setting your computer to print double-sided to reduce the amount of paper used.

9. Publicise your company’s commitment to reducing your environmental impact as more than a third of customers will usually favour recyclable products or those with minimal packaging.

10. Some suppliers offer “take-back” schemes for unused products. You may be able to get some money back for them.

Useful links:

Making your small business more energy efficient

Zero percent interest loans for energy efficient equipment

Carbon Trust

DEFRA

Photo by Danilo Rizzuti

Innovation is an essential driver for regional economic growth and a new national report has revealed how significant it can be in closing the productivity gap.

Two thirds of private sector productivity growth between 2000 and 2007 was driven by innovation, claims a new report by NESTA.

The findings are revealed in The Innovation Index: Measuring the UK’s investment in innovation and its effects (PDF, 1.59mb), the most ambitious attempt yet to measure the contribution of innovation to the UK’s economic growth.

The Index, which will be published on an annual basis, reveals a direct link between the amount of innovation that companies invested and productivity output.

UK businesses invested £133bn in innovation in 2007 (the most recent year covered by the Index), representing 14% of private sector output.

The effect of all this innovation is increased productivity. Two-thirds of UK private sector productivity, 1.8 percentage points of productivity growth per year, between 2000 and 2007 was a result of innovation.

This compares favourably with the best data available for countries like France and Germany, and similar to the US levels.

It may account for why the UK has enjoyed higher productivity growth in recent years than France or Germany: 2.0% compared to 1.3% and 1.1% respectively.

The Index also reveals that:

Innovation is linked to business growth across a range of sectors

Innovative software firms enjoyed a much faster growth rate than non-innovative ones (13% average revenue growth per year compared to just over 0%).

But this relationship holds true even in sectors not traditionally associated with innovation, such as legal services, where innovative firms enjoyed average revenue growth of over 10%, while non-innovative firms’ revenues shrank on average.

The UK is a relatively good place to innovate but has some shortcomings

The UK is a mid-table performer when it comes to the wider conditions for innovation compared to other leading economies (the US, France, Germany, Japan, South Korea and Finland).

However, it performed poorly on three important indicators:

• Access to finance
• Demand for innovation (in particular the use of government procurement to encourage innovation)
• Skills for innovation

This post was contributed by Brian MacAulay, Director Innovation Index at NESTA.

(Thane) Yesterday, when Thanksgiving was being celebrated in America, I paid a visit to a rural Indian village. The visit was a stark reminder of the fact that India’s economic growth has so far largely failed to trickle down to the poorest members of the population. While Delhi and other Indian megacities have been visibly transformed in recent years, overall rates of poverty and malnourishment have remained stubbornly high.

Indeed, the persistence of such stark poverty in India is an absolute scandal. The rate of child hunger is the highest in the world, far higher even than the rate of child hunger in sub-Saharan Africa, and child malnourishment has hardly decreased, if at all, in the past two decades.

Most villagers have seen almost no change in the material conditions of their lives. In the village I visited, most houses did not have power, there was open sewage running along the streets, and it was many kilometers away from any health care providers. Here’s a picture of a shack made entirely of cow dung:

Here’s one of the larger buildings in the village–note that the road alongside it has an open sewer running down the side.

I was in the village to observe a human-rights training seminar being run by an NGO, a program that we hope to expand to the villages around Jindal Global University. The villagers were invited to share some of their problems, and the list was disheartening. No doctors, no transportation, no jobs, lots of death from malaria and rabies. The schoolteachers often didn’t come to the schools, and there was rarely any food provided. I couldn’t imagine having to face every day in such a titanic struggle just to get the basic necessities of subsistence.

I visited one of the schools, which had known we were coming, so all the teachers and students were in attendance. They even had a “high-quality” lunch that day, which was a small bowl of mushy rice, with a few kernels of corn in it. Here, the students stand in their outdoor classroom in front of the one piece of technology the school has–a battered blackboard.

There is clearly such a long way to go in India, and it’s important not to lose sight of that fact because of the relative creature comforts in Delhi. Just to get a sense of the contrast, we stopped off in Gurgaon, Delhi’s ritziest suburb, on our way back home, to check out the largest mall in Asia. Here’s a picture of the interior, complete with a grand piano in the middle.

I had only traveled about twenty miles from the village, but I was in a whole different world. I’m very thankful for the blessings in my life, and I’m once again reminded of the need to work so that more can enjoy those blessings. It may be a cliche, but it’s an important one to remember on Thanksgiving.

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Robert Skidelsky, with whom I debated on this issue a few weeks ago, has returned to the fray in the Guardian. In his new article he looks at Keynes’s prediction that by 2030 the world (or at least the developed part of it) will have raised living standards sufficiently to call a halt to growth and to reduce the working week to 15 hours. Skidelsky points out that we have already reached Keynes’s income target in the west, but instead of this leading to a shorter working week it has led to the tendency for people to work longer for higher pay. He explains this as due to  insatiable desires induced by the consumer society.

 Keynes …recognised that there are two kinds of needs, absolute and relative, and that the latter may be insatiable. But he underestimated the weight of relative needs, especially as societies got richer, and, of course, the power of advertising to create new wants, and thus induce people to work in order to earn the money to satisfy them. As long as consumption is conspicuous and competitive, there will continue to be fresh reasons to work.

As I pointed out in my debate with Skidelsky, the developing world is far from reaching even the basic levels of income required to combat poverty. This alone would demand that we continue to grow the world’s economy for many years to come. I also argued that even in the west there are many areas of life and many sections of society which are underfunded and  suffering deprivations of different types.

However let us accept for the time being that we stay in the developed countries and we equalise incomes to produce a tolerable subsistence level for all of society. Would this then justify an end to growth? It is a good question to ask. After all, it is true that often consumption for consumption’s sake can induce a feeling akin to nausea. It is something I experience every Xmas when confronted with the huge pile of presents which arrive for my children, most of which are consigned to the rubbish tip within days (sorry grandparents!). It is also true that we ‘need’ many of the things we buy only in the sense of satisfying a desire, rather than in order to keep alive and healthy.

So should we cut back on growth and train ourselves to not want things which we do not absolutely need? I think this is a dangerous path to pursue. Human beings have developed modern sophisticated societies on the back of scientific, medical, technological and engineering progress. Taking the long view, in the space of a few thousand years we have transformed ourselves from primitive beings at the mercy of the elements to masters of our own destiny. We have turned our planet from a hostile environment to one of relative safety for most. Accepting an end to growth in all of these areas would mean that we have effectively called a halt to our upward progress.

This would have profound effects on who we are. Humans have become something special through our conflict with the natural forces which threaten us. We have transformed ourselves into civilised people through this process. If we gave up on this struggle, stopped being inquisitive and experimental, we would be in danger of becoming the human equivalent of cows, well fed, safe and chewing the cud to pass the time.

Where Skidelsky has a point is in his recognition that we have paid a price for the way in which we organise production,

The accumulation of wealth, which should be a means to the “good life,” becomes an end in itself because it destroys many of the things that make life worth living. Beyond a certain point – which most of the world is still far from having reached – the accumulation of wealth offers only substitute pleasures for the real losses to human relations that it exacts.

Here Skidelsky touches on the alienating and destructive effect of modern capitalism on human relations,something Marx described brilliantly in his description of commodity fetishism. It is true that the capitalist mode of production isolates and alienates us from each other through the endless process of competition. But to use this as a reason to abandon economic growth is to confuse the current way we organise production (capitalism) with the purpose of production (raising living standards). We can find an alternative to the first eventually perhaps, but we should never give up on the struggle to develop ourselves through further control over the world around us.

Macro

China-Bashers, Believe What You Want to Believe

In his recent comment: The Truth Behind China’s Currency Peg, Peter Schiff re-asserts some of the points I have made many times before (see the most recent summary of some of my points on China’s currency Peg in my comment on 12th November). Contrary to the China-obssessed so-called American anti-protectionists, a revaluation of the Renminbi Peg to the Dollar will do very little to appease the woes of Anglo-American manufacturers.

1. Because the manufacturing base has been systematically weakened at the core over decades of neglect. Ground has been lost to South America, Asia, Mexico, Eastern Europe (and for more sophisticated products and processes to Germany, Japan and increasingly to China). Note, if you think: “ah yes but countries like China simply do not have the capability or intellectual capital to compete with us on high-end, innovative sophisticated products”, then you are de facto admitting that a revaluation of the Peg will succeed only in suppressing “unsophisticated” Chinese exporters relative to their competitors. Thus it will have very little influence on lubricating so-called sophisticated Anglo-American manufacturers, who will still face the same competitive headwinds (e.g. from highly developed manufacturing economies with well-educated engineering bases like Germany, Japan), irrespective of what happens with the Peg.
2. You think that, in the event of a revaluation of the Renminbi, intellect-lite manufacturing will not simply hop across the borders to Vietnam, Cambodia, Indonesia, Malaysia – where many people work for less than $10 a day? How are we going to compete with that? In order for a Peg revaluation to give significant support to our manufacturers we would have to find some way for our basic factory workers to compete toe-to-toe with the now export-oriented developing World. An entire manufacturing base and mercantilist government model has been build around a nation where 200 million people still work for less than $5 a day, and that’s just China. Somehow our paper cup manufacturers and plastic calculator assemblers will have to close that gap. Think about that for a minute… it ain’t gonna happen, is it? Not without a great deal of destructive protectionism on our part.

Perhaps I’m exaggerating a little to make my point, but the reality is; there are limitations to all this talk that a revaluation of the Renminbi Peg will provide a great overnight revitalization to our broken, dilapidated manufacturing sector. I haven’t even begun to express the concerns Schiff correctly brings up about the effects this will have on American consumption – and thus the fragile recovery. Western economists and politicized media sensationalists still believe that a Currency Peg revaluation is the ticket to our prosperity. Dream on.

People are funny, you know. Conceptually, the World is a small place and it’s getting smaller, never-the-less, individually, at times we all seem to grow up in isolation from each other. One man’s food is oft another man’s poison. I remember biting into a tomato in front of my cousin in Ghana and he was amazed that I would even think to eat a raw tomato. Tomatoes are for cooking, it was like taking a bite out of an onion to him. When I told him I sometimes eat raw onions on salad he practically retched on his delicious mouthful of dried fish eye-balls.

So it is with finance, all economists are cultivated in their own isolated bubble. It’s human nature for them to stand simply aghast when they see something out of their ordinary sphere of education.

On that note, I wish to address the critics who claim that China is running impractical monetary policy. We hear the famous line: “you can control interest rates or foreign exchange rates, but not both”. In choosing to Peg its currency China has lost a degree on control over its interest rates (hence the speculative “hot money” inflows etc).

So China controls its economy, in part, by controlling currency valuation and micro-oversight of the banking system (reserve requirements etc) as opposed to the “normal” model of controlling interest rates. Errmm …so what?

China is running a model still highly dependent on export manufacturers and has an under-developed banking system. Management of the economy through its currency is deemed a more important, more influential control-lever than interest rates in the financial system. Let me put this more bluntly; controlling interest rates doesn’t matter – what matters is controlling inflation.

“Aha, but you need to control interest rates to control inflation”, cry the conventionalists in the Introverted Bubble School of Western Economics.

My question is: “Really? Do you?”

I was skim-reading the first page of Chia-Liang Lian’s piece at PIMCO: Emerging Asia: How Will Easy Monetary Conditions Prevail? And my mind began to drift a little. It became apparent that there are many ways for China to control inflation, controlling the exchange rate of their currency could be as good as any. Indeed, for a mercantilist regime at the forefront of international trade, it may prove to have just as much traction on the economy as centralized interest rates. Revaluing the Renminbi higher will act simply like hiking interest rates in the US, not only will it reduce the monetary base as exporters’ top-line gets clipped, but it will open the disinflationary spigot for much cheaper imports to extinguish any inflationary fires.

“… hmpfft, that’s a bit of a simplistic, blunt tool for trying to control inflation, isn’t it?”, scoff the conventionalist mob.

My response is: “… oh, and revolving the entire economy off a single central bank interest rate isn’t? Look where that got us. Not only that, China is a big country – the inflationary pressures may not be noticeable in the Northern or Western Provinces but are likely to be first felt along the South Eastern coastline trading regions – so this “trade spigot” may actually be more targeted than you think.”

Now, there are some big stretches for even my imagination to take here, but I suppose my general point is this: one just needs to think a little outside the box when considering China’s economic challenges and thus its economic policy. Put simply: 1.3 billion people in the third largest economy in the World, growing at breakneck speed – the World has simply NEVER seen this before. One should try not to continually apply our ideas of convention as solutions to China’s immensely complex economic and social challenges.

The Chinese kept the peg firmly fixed for many years as their fledgling economy took off on a meteoric track to prosperity. Growth is a great pacifier for a Communist body obsessed with social stability. Then, as the manufacturing sector became entrenched in the Globalized forum and the economy matured a little, the dreaded harbinger of social instability; inflation, once again reared its ugly head. It was at this point that China began to revalue its currency. You think this was a coincidence? Then as the financial crisis unfolded, a great disinflationary force was exerted on the World – inflation fears in China subsided due to external pressures from The West. It was at this point that China re-locked the Peg. You think this is coincidence? Now after some aggressive stimulus and forceful lending by the banks, asset prices have recovered, so too has production and consumer spending. As inflation creeps back into the Chinese system, are the murmurs of potential Renminbi Revaluation concurrently appear to be surfacing, you think this too is coincidence?  Yes, some of these measures were taken partly to insulate Chinese exporters from a cataclysmic recession – but I think there was an inflation-control element to this as well.

There are those who think that the political rhetoric is working to put China under pressure and that the 20% revaluation that has taken place over the past two years is as a direct consequence of so-called anti-protectionist political pressure on the Chinese: they bowed down subserviently to the might and power of reason on Capitol Hill.

Yeah, whatever… believe what you want to believe.

Macro Data to Watch:

• Remember, tomorrow is Thanksgiving in the US so this week is going to be quiet.
• Malaysian GDP
• UK GDP
• US Initial Jobless Claims – are we ever going to get that number below 500k?
• US PCE Core Deflator out too.

Markets

Been following interest rates recently. Given that short term US interest rates went negative… yes that’s NEGATIVE this week it’s been quite interesting trying to read the bond market. Rates aren’t just falling in the US either – check out the 5 year interest rate in Japan (see attached 5 year swap rate graph).

Source: Bloomberg

Another little thing caught my eye today. The Japanese Yen is reaching a high versus the US Dollar – or perhaps I should just say that the Dollar is reaching a low against the Yen. It’s been out of range for a while, but it’s creeping towards that 88 low we saw back in early October.

Source: Bloomberg

Global Stocks to Watch:

• Clearly the China B share market is one to watch today.
• It’s not just Lloyds, there are also lots of rumours that the Chinese banks may have to raise more capital – keep an eye on the usual suspects: BoC, ICBC etc.
• You see Medtronic went to the moon on earnings. Look out for spill over into other medical equipment suppliers, service providers.
• Earnings:
  • Porsche
  • Deere (tractor maker)

Fascinating article in the Guardian by Polly Toynbee , called
cooling the cutting fisticuffs – take a long, hard look at tax . What the article claims, and what I found particularly interesting, is that the bottom 10% of earners pay 46% of their income in tax, while the richest 10% pay only 34% of their income in tax. What is more, the top fifth of earners take 51% of the national income while the bottom fifth take 3%. This comes from a report by a centre-left pressure group called Compass , and I have no real reason to doubt its veracity.

Apparently the reason for this discrepancy is that the highest earners can take some (or most) of their income in the form of capital gains which is only taxed at 18%. So even though their salary is taxed at a high rate, their actual salary only makes up a small fraction of their total earnings – most of it coming in the form of capital gains. When I first read this I immediately thought that although this may be true, most low earners effectively recover what they lost through taxes in benefits, but I think this doesn’t really make a difference. The public sector makes up something like 40% of the UK’s economy. If we want to sustain what the public sectors offers people in the UK, we have to roughly recover 40% of the total income. We could of course decide that the public sector should only make up 30% of the UK economy which we could achieve by privatising some parts of the public sector, but I happen to believe that this would not be improve things in any way.

So assuming that we accept that the public sector is going to make up about 40% of the UK economy, how do we fund that? Well a simple way would be to take 40% of everyone’s income. This could be through both direct and indirect taxation, but at the end of the day we need this to fund the public portion of the economy. What you could then choose to do is to take a slightly higher fraction of the top earners’s income, leaving those on lower incomes with more money. You can even give some of money back to the lowest earners through benefits since they take such a small fraction of the total income, that this won’t really have a significant impact on government revenue. What you certainly don’t do is take less than 40% of the highest earners’s income. They take such a large portion of the total income that this will have a huge effect on the total amount of government revenue. How can we possibly expect to both sustain the public sector – which I think we should be doing – and draw down the deficit if we don’t at least tax the the highest earners at a rate that will give the government sufficient revenue.

In some sense this isn’t even a discussion about what is fair or not, it seems logical that the simplest way to ensure that government revenues are sufficient is to start by making sure that the highest earners are taxed appropriately. If not enough is recovered from the highest earners, it becomes increasingly difficult to get the remainder of what is required from the lowest earners since they take a smaller fraction of the total income. It seems ridiculous that we are only taking 34% of the total income of the top 10% of earners in a country that intends to have a public sector that makes up 40% of the economy. The top earners presumably would argue that they don’t rely on the public sector to the same extent as the lowest earners, but this is nonsense. Also, in an average sense, something like 40% of their income presumably comes from the public sector. In fact, since they take such a large fraction of the total income, more than 40% must come from the public sector and so taxing them at a higher rate, to a certain extent, is simply recovering public money.

WASHINGTON – The economy is growing modestly, with consumers too wary about spending to invigorate the recovery.

That picture emerged Tuesday from reports on the nation’s economy and the confidence of consumers, who power 70 percent of it. The economy grew at a 2.8 percent rate last quarter — less than originally estimated. And forecasts for the current quarter are for similarly slight growth before a drop-off next year.

The main reasons are that consumers remain reluctant to spend, commercial construction has slipped and imports are dampening U.S. growth.

The Commerce Department’s new reading on gross domestic product was weaker than the 3.5 percent growth rate for the July-September period estimated just a month ago. The GDP, which measures the value of all goods and services produced in the United States, also was a tad weaker than the 2.9 percent growth rate that economists surveyed by Thomson Reuters had expected.

At the same time, the Conference Board’s latest survey of consumer confidence found that as retailers enter the crucial holiday season, shoppers remain gloomy. Unemployment and tight credit have sapped consumers’ willingness and ability to spend freely.

Also Tuesday, the Standard & Poor’s/Case-Shiller home price index of 20 major cities suggested that the housing market’s recovery is continuing, if only gradually. Home prices rose slightly in September. Compared with a year earlier, though, they remain down 9.4 percent.

http://news.yahoo.com/s/ap/20091124/ap_on_bi_go_ec_fi/us_economy

Just like the bogus “jobs created or saved” numbers – the Obama Administration continues to politicize the numbers …. GDP growth was overstated by 35% and home sales – which are repeatedly touted as being “up” are in fact down between 9% and 10% from last year – one of the worst years on record ………

My search to find official recognition of Prosperity Without Growth was not entirely fruitless.  Amongst the other documents for download from HM’s Treasury I found this little gem produced by Feasta (Foundation for the Economics of Sustainability, see link opposite) inputting into the Stern Review on the Economics of Climate Change.  It’s a couple of years old now and doesn’t take account of recent events in the financial markets but not withstanding that still has an interesting idea to put on the table.

This paper recognises that the current financial system is based on debt produced money (97% of money in the OECD).  More money and economic growth is constantly required to prevent the debt laden financial system from collapsing.  New growth is constantly required to service old debts.  Without growth the current financial system collapses with all of the real social effects that we have witnessed over the past year magnified many times over.  As such much as politicians would like to concern themselves with social and environmental aims these are always trumped by the need for economic growth.

Feasta recognise that if global green house gas emissions are to be rapidly curbed fossil fuel usage will have to be rapidly reduced.  This would cause economic growth to slow and quite possibly be negative for a protracted period.  A long depression caused by contraction in the real economy would be likely to bring down the global financial system.  For sustainability to be achieved therefore Feasta insist that the global financial system must be overhauled.

Feasta also recognise that whether by peak oil or by climate change restrictions the price of energy is going to increase in the coming years.  They also note the importance of not simply allowing distribution of this vital good to be left to the market.  In times of shortage (such as war) even very market oriented governments have introduced rationing systems to protect the poorest from being priced out of an unregulated market.

They suggest that a global buyer’s club for fossil fuels be created and that rights to buy fossil fuels be granted to governments on the basis of population.  Developing countries with currently no need for their full allocation could sell their ration providing them with resources for convergence.  The benefit beyond being a global cap and trade system is that it also puts effectively a new currency, not based on debt and with the seignorage benefit accruing rather more evenly across the world.  If the financial system does collapse having at least one hard currency left could be rather useful.

The Sustainable Development Commission released its report “Prosperity Without Growth” in March this year arguing that economic growth no long makes us prosperous in the developed world.  Tim Jackson, the lead author of the report, has used and expanded the work to produce a book of the same name which was launched last week.

The report and following book have been welcomed in sustainable development and climate change circles.  Support for the book has come from many individuals including such heavy weight economists as Anthony Giddens, Robert Costanza and Herman Daly.  Some seem to think this is one of the most important books to come out this year, with one individual stating that this could be as important to sustainable development as the Brundtland Report.

This begs the question as to why when I typed “Prosperity Without Growth” into the DEFRA, Number 10 and Treasury search boxes I didn’t manage to find it.  I found a single reference to on a search on the Conservative’s website, contained within a speech which then went on promote “green economic growth” which misses the main theme of the report.

It would appear that while the Sustainable Development Commission is an independent advisor to the government, the government can and does ignore much of what it produces.  Herman Daly is quoted as saying that Prosperity Without Growth “Provokes official thought on the unthinkable.”  I wish it did but I’m still waiting for the evidence.

Macro

Abraham’s Alternative Asset Class

“…with anybody that stands right, stand with him while he is right and part with him when he goes wrong” – Abraham Lincoln.

In his Latest Piece, Bill Gross writes about his horror when, after looking at his bank statement, he realized that he was only getting one basis point (0.01%) interest on his bank account. For those of us not living in Australia, it’s a familiar feeling. Not only that, as account holders at Northern Rock will tell you: just because your money is in a bank does not mean that it is safe. In fact, once you probabilistically account for the risk of losing everything, the fees and hidden charges its quite conceivable that as honest, law abiding citizens you’re actually paying to lend (that’s right lend) money to the banks! What sort of deal is that? We’d all be better off withdrawing all our money and putting it in a safe deposit box in Zurich. Seriously, though, we would. As Gross points out, the pain of 0.01% simply becomes too much to bear “anything but this 0.01%”!

OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? Damned if you do, damned if you don’t. Do you buy the investment grade bond market with its average yield of 3.75% (less than 3% after upfront fees and annual expenses at most run-of-the-mill bond funds)? Do you buy high yield bonds at 8% and assume the risk of default bullets whizzing at you? Or 2% yielding stocks that have already appreciated 65% from the recent bottom, which according to some estimates are now well above their long-term PE average on a cyclically adjusted basis? Two suggestions. First, as emphasized in prior Investment Outlooks, the New Normal is likely to be a significantly lower-returning world. Diminished growth, deleveraging, and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest. As banks, auto companies and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less.

It’s actually a difficult conundrum to solve when the World is so awash with liquidity. Old Abraham’s challenge is yet more convoluted because in the distorted reward system that is the banking and thus investment universe, it is getting harder and harder to decipher which investment avenues are “right” and which are “wrong”.

There is also a not-so-subtle point about cash-hoarding, which I’ve made numerous times before: a central bank hell-bent on extreme monetary policy to stoke inflation will destroy your savings – if not purely for the reason that they have stated (as explicitly as a central banker can) that they will keep the stance extremely accommodative until the lagging indicator of rising employment is baked-in-the-cake. That means the money you lend to the bank at risk could yield much less that 0.01%. How long could you bear this risk at a MINUS 5% real yield on your money? Heck you might as well load up on equities at the top – at least they pay a dividend! Which pretty much explains the movement of the equity markets thus far.

At a fundamental level, this is quite sickening. In running extremely accomodative, inflationary regimes, policy makers are rewarding failure of individuals and institutions alike for taking too much risk and incurring too much debt at the sacrifice of the diligent, responsible savers. Why are they doing this? In part due to their own failure to provide adequate oversight of inflation and risk in the banking sector. Consequently, the size of the irresponsible contingent became so dangerously large (and politically powerful) it put everybody at risk. Banking profits are indeed being privatized while risks are socialized across the tax-paying public and this is being marketed as a burden we all have to bear “for the greater good”. The judiciousness naturally inherent in a capitalistic model has been (temporarily, we are told) thrown out of the window, the book on creative destruction has been torn up. But this is not the only time intervention from the meddling classes have contaminated the soil of the financial ecology we used to call free-market capitalism, and it will certainly not be the last.

Interestingly, Gross does mention that there are good reasons to expect asset price volatility in the Global market place – in particular, from the Renminbi-Pegged Elephant-in-the-room - not to mention uncertain inflation expectations, ballooning deficits, exploding debt-to-GDP ratios, sky rocketing Fed Balance Sheet etc etc (don’t get me started). This will also add frictional cost, as well as frightening risk, to the leap of faith required to invest hard earned savings in the more conventional, most accessible and liquid assets. Gross (uncharacteristically) recommends investors put their money in utility stocks. In my opinion, that’s effectively a concession that there is absolutely nothing in the bond markets for the small investor.

Perhaps he is right, but there are other asset classes which are becoming more and more accessible to smaller investors and which seek to benefit from both the economic and technical predicament. I am talking about “Alternative Investments” or Hedge Funds – and no, I have not gone bonkers.

Much berated, hedge funds have paid their price for lax risk management and inefficiency. Some so-called “hedge” funds were not even hedging, they were just “long and wrong” and leveraged to boot. Some, like Madoff, were not even funds – they were simply crooks. Some hedge funds simply did not have the talent or the “alpha” they claimed to have and were just bandwagon merchants happy to ride the Greenspan-engined gravy train of liquidity and lax financial regulation. Some were simply unlucky – in the wrong place at the wrong time. Those funds are now gone.

Despite my natural penchant for cynicism and accountability, I cannot agree with ignorant media monkeys who, without much comprehension for the concept of arbitrage or hedging strategies, seem to lay the blame for the crisis at the feet of the Alternative Investment Industry or the “shadow banking system”. That includes the wise men at PIMCO. Granted, the Hedge Fund Bubble was an ugly symptom of the problem, but the original, true, honourable Hedge Fund Model of absolute return and capital preservation was certainly not a cause of the irrational exuberance which lead to the crisis. On the contrary, looking back, in time I think we’ll understand that it was a desperate attempt by investors to avoid it.

Indeed, despite leverage ratios at only a fraction of the banks (like, less than one tenth), many of the good hedge funds which survived are just shadows of their former selves. Unlike the banks, as withered funds struggle to reach their “high water marks” (they have to recoup losses to investors before paying themselves) on a depleted asset base, there will be few hedge fund managers paying the big bonuses of yester-year. In fact, given the streets are literally littered with out-of-work hedge fund portfolio managers, most just count themselves lucky to still have a job. There was no blatant reward for failure in the hedge fund industry, and rightly so.

There is comfort to be taken from the fact that at least one facet of the banking industry is not being directly rewarded for direct failure – the Darwinian forces of capitalism are still working in parts of the system. How many Hedge Fund Bailout Plans did you hear of? How many hedge funds had bad investements directly supported with tax-payers money? I can’t remember many. In fact hedge funds were made directly accountable to their investments by their investors – many of whom were the portfolio managers themselves.

The Alternative Investment got knocked off its feet, “took an 8-count” (as we say in boxing) and is slowly dusting itself down and rising to its feet again. Lessons have been learnt, egos have been humbled, relationships have been tested. Consequently, the survivors are the strong, diligent, committed players with genuinely applicable talent and innovation within the industry. Investors are rightly demanding more transparency, more liquidity and less fees. Gone are the days when any half-successful 25 year old investment banking trader can woo a couple of seed investors and run off with $100 million to start up a hedge fund with an automatic “2-and-20” (2% management fee and 20% performance fee). Expect a tiering of fee structure with only those who can justify 2-and-20 keeping that privilege.

So if you have enough cash and you, like Gross, are feeling the pain of 0.01% (potentially, soon to be  minus 5%) return on your cash, then perhaps you should consider looking at the real alternative: Alternative Investments. In particular seek out investments that stand to benefit from the economic predicament and rising volatility – like certain macro hedge funds and volatility strategies. In my opinion, volatility rates are as much an asset class now as fx rates. There is only one thing which is sure to rise over the next few years and remain elevated for a long time and it’s not Gold – it is volatility. The more uncertainty over inflation/deflation, the more leverage in the economy (via rising deficits), the more political uncertainty (regarding China’s exit strategy for the Renminbi and the US “strong Dollar policies”) the more potential for volatility – not just in equity prices, but in fx rates, interest rates, credit spreads, commodity prices. It’s all out there whether we have inflation or disinflation. To make things easy for you, the VIX is at an all time low.

Lastly, just want to show an article which is kinda related to the above comments: Taiwanese Investors do not Understand the Risks of Bond Funds. There really are few alternatives to the Alternative Investment space.

Macro Data to Watch:

• Rumors that GDP will be revised down to +2.5% from the +3.5% preliminarily reported figure. Ouch! As Rosenberg says “is that all we get for our money!?”
• German GDP (expected +0.7%)
• South African GDP – expected to be positive (+0.5%)

Markets

Stocks and commodities rallied as the Dollar got hit again.

Gold, Silver and Platinum both hit new highs yesterday. Gold touched $1174 per oz. Roubini is starting to look a little humiliated I think – once we break through $1200 he’ll have to concede that Rogers may be right.

Meredith Whitney on the state of the banks says that she has never seen this level of credit contraction. For all this talk of inflation, that pretty much puts her in Rosenberg’s deflation camp. The jury is indeed still out. Clearly Meredith thinks that the banking sector is one to watch over the next 6 months – from a volatility perspective, I do too for that matter.

Global Stocks to Watch:

• Earnings:
  • Heinz
  • Medtronic

David Cameron appears to have realised, as I predicted, that his party’s call for austerity is not terribly appealing. He is now talking af the need to promote economic growth. At this stage there is no substance behind the talk and it seems to be as rhetorical as his earlier call for austerity.

There are really only two main ways in which government can influence what happens in a market economy. The first is at the level of political leadership. This means that government sets an agenda for the nation, and creates a legislative framework to enable the agenda to operate. In that sense focussing on the need for growth is a step in the right direction. However, even at this level it is important to identify what the barriers to growth are that need to be overcome.

In the UK, some of these are historical and structural and to do with the shape of the UK economy, particularly its over-reliance on financial services. Some are to do with social and cultural factors, particularly the culture of risk aversion which has enveloped our society in the recent past. One of the main dangers as we creep out of the recession is that the lessons we learn may make us even more risk averse at a time when boldness is at a premium.

A new report from the Confederation of British Industry (CBI) for example predicts that businesses will adopt ‘a more balanced, less risky pathway to growth’. This may seem sensible in the aftermath of a recession, except that it contains the wrong assumption that it was risky behaviour which created the recession in the first place. This has now become the default position of those who have tried to explain the recession, that it was the product of risky behaviour in the financial sector.

It is vital that we do not allow this interpretation to remain unchallenged. The bubbles in the financial and housing sector which preceded the recession were the product of a stagnant economy, not caused by risky behaviour. Real productive investment in the UK and other western economies was seen as too long term and risky and has declined in favour of speculation. The bankers were responding to a demand for risk free investment with high returns hence the boosting of both the housing sector, seen as a one way bet, and the slicing and dicing of investments to spread the risk.

The second area in which governments can affect what happens in the economy is in the areas they have direct control over such as education, civil administration, health and infrastructural projects. The main danger here is that without an overall plan of how to revive the economy, decisions will be short term  and based on trying to placate public opinion. Here we can see the dangers of the weakness of the political class at its most exposed. Without the confidence to make long term decisions, which may be unpopular, the decline of the UK threatens to become a self fulfilling event.

What all these factors mean when put together is that collectively there is little belief that we can become a dynamic economic nation once again. One can sense that behind the flip-flopping of Cameron on the economy lies a genuine lack of belief that major change can be effected. In the absence of  clarity on this issue it is very unlikely that real political leadership in the form of agenda setting will emerge.

Emerging Metropolisses – The Future is Urbanisation

Macro

Good trip in Singapore. The South-East Asian city-state is a wonderful place with an ambience which seems to strike that balance between relaxation and work very well. On Saturday we hopped across the bridge to the island of Sentosa – it’s practically a holiday resort, with bars, kid’s activities and a fake surf machine to boot! However, one cannot help feeling that, despite the infrastructure spending and development, Singapore is still on the periphery of the Asian industrial engine. It has a warm, yet isolated, community feel about it – indeed, it feels more like an island than Hong Kong.

Back to the grindstone; I’m going to ease myself into it. A couple of articles which grabbed my attention.

Firstly, I’d like to highlight the following table, courtesy of PwC http://www.pwc.com/gx/en/press-room/2009/largest-city-economies-uk.jhtml which was highlighted in a good article by Seeking Alpha: The World’s Top 10 Cities in 2025.

Top 30 urban agglomeration GDP rankings in 2008 and illustrative projections to 2025 (using UN definitions and population estimates)
Rank in 2008	Cities ranked by estimated 2008 GDP at PPPs	Est. GDP in 2008 ($bn at PPPs)	Rank in 2025	Cities ranked by projected 2025 GDP at PPPs	Est. GDP in 2025 ($bn at 2008 PPPs)	Real GDP growth rate(% pa: 2009-2025)
1	Tokyo	1479	1	Tokyo	1981	1.7%
2	New York	1406	2	New York	1915	1.8%
3	Los Angeles	792	3	Los Angeles	1036	1.6%
4	Chicago	574	4	London	821	2.2%
5	London	565	5	Chicago	817	2.1%
6	Paris	564	6	Sao Paulo	782	4.2%
7	Osaka/Kobe	417	7	Mexico City	745	3.9%
8	Mexico City	390	8	Paris	741	1.6%
9	Philadelphia	388	9	Shanghai	692	6.6%
10	Sao Paulo	388	10	Buenos Aires	651	3.5%
11	Washington DC	375	11	Mumbai (Bombay)	594	6.3%
12	Boston	363	12	Moscow	546	3.2%
13	Buenos Aires	362	13	Philadelphia	518	1.7%
14	Dallas/Fort Worth	338	14	Hong Kong	506	2.7%
15	Moscow	321	15	Washington DC	504	1.8%
16	Hong Kong	320	16	Osaka/Kobe	500	1.1%
17	Atlanta	304	17	Beijing	499	6.7%
18	San Francisco/Oakland	301	18	Boston	488	1.8%
19	Houston	297	19	Delhi	482	6.4%
20	Miami	292	20	Dallas/Fort Worth	454	1.8%
21	Seoul	291	21	Guangzhou	438	6.8%
22	Toronto	253	22	Seoul	431	2.3%
23	Detroit	253	23	Atlanta	412	1.8%
24	Seattle	235	24	Rio de Janeiro	407	4.2%
25	Shanghai	233	25	San Francisco/Oakland	406	1.8%
26	Madrid	230	26	Houston	400	1.8%
27	Singapore	215	27	Miami	390	1.7%
28	Sydney	213	28	Istanbul	367	4.2%
29	Mumbai (Bombay)	209	29	Toronto	352	2.0%
30	Rio de Janeiro	201	30	Cairo	330	5.0%
Source: PwC estimates and projections using UN population data and definitions Growth rates in final column relate to the cities ranked by projected GDP in 2025 in the fifth column of the table. Cities rising by more than 3 places in the rankings between 2008 and 2025 are highlighted in bold in the table.

Notes to editor:

1. Distribution of top 50 and top 100 cities by country in 2008 and 2025 projections

Countries	Number of cities in 2008 in:		Number of cities in 2025 in:
	Global top 50	Global top 100	Global top 50	Global top 100
US	20	23	17	23
Japan	2	3	2	3
Germany	0	3	0	1
UK	1	4	1	3
France	1	2	1	1
Italy	2	3	0	2
Canada	2	3	1	3
Total: G7	28	41	22	36
Other advanced economies	8	20	8	16
Total: advanced	36	61	30	52
China	3	5	4	8
India	2	6	3	9
Brazil	2	5	2	5
Russia	1	2	1	2
Mexico	1	3	1	3
Indonesia	0	1	1	1
Turkey	1	2	1	2
Total: E7	10	24	13	30
Other emerging economies	4	15	7	18
Total: emerging economies	14	39	20	48
All countries	50	100	50

Source: PricewaterhouseCoopers analysis 

It’s important to understand that this table is based off GDP projections, so Tokyo, the largest city in the World with a GDP approximately the size of Spain, is quite a hard one to dislodge in first place. There are some glaring points to note: why did London gain ground against Paris? Where did Sydney go? American cities like Detriot and Seattle simply drop off the map. Of course, standards of living are not necessarily falling in these cities, it’s just GDP-related and its just relative. If anything, this can be interpreted as a measurement of political and economic global influence rather than “pleasantness” or affluence. Singapore (despite its “holiday resort ambience”) really loses out to Hong Kong in the race to become the Asian Economic Financial Epicenter and they are both trumped by Shanghai and Mumbai! Shanghai rises from 25^th to 9^th and Mumbai from 29^th to 11^th. Beijing and even Guangzhou are right up there above European heart-throbs like Rome and Madrid. Right, that’s decided it, my kids are learning Chinese. 

Perhaps the most significant thing is best displayed on the second table. Nearly 50% of the top 30 cities are in what we now call Emerging Markets (they won’t be “emerging” by 2025!).

Now let’s look at an article by Brigitte Posch of PIMCO: EM Infrastructure Spending: Rising Commitment and Growing Opportunity. In particular the following excerpt:

Building Cities, Supporting Rural Areas

According to the World Bank, in 1950 only 30% of the world’s population lived in cities. This year, for the first time in history, a majority of the world’s population lives in urban centers. By 2030, this figure is expected to reach 65%. Cities will need to absorb another 2 billion people over the coming 20 years, and 90% of this urban expansion is expected to take place in the emerging world.

 

This demographic challenge will give rise to unprecedented demands for investments in infrastructure in thousands of cities and towns.  Further, in order to limit the urban migration, infrastructure spending will need to create adequate growth and income opportunities in rural areas. These investments should improve the market linkages from the rural regions of the country to the urban areas, where the bulk of domestic consumption takes place. Further preventing the urban explosion will mean investing in manufacturing and service-delivery capacity in regions further removed from today’s urban core. 

 

If your horizon is long enough, there are some interesting trends in the Emerging Market World which astute investors would clearly do well to slipstream. It’s worth also noting that Warren Buffett’s largest investment (and, in my opinion, most ambitious investment) is effectively a US infrastructure play. Perhaps the trend is not limited to Emerging Market Economies?

Macro Data to Watch:

• Japanese Bank Holiday (Labour Thanksgiving Day)
• Taiwan Numbers:
  • Jobs
  • Exports
  • Industrial Production
• Thailand: GDP Numbers out today.
• US Employment numbers had a chance for initial jobless claims to dip below 500k for the first time in almost a year but just failed, coming out at 504k. All eyes on this US GDP number tomorrow – just don’t want any surprises on this. QoQ Q3 GDP Growth came out at 3.5% in October, if you remember. 

Markets

Quite surprised to see Gold continuing its surge, despite a lackluster week for stocks last week.

Lots of talk about the so-called US Dollar carry trade. The Dollar still languishes around the lows but an unwind of the carry trade, some say, (like Roubini Mother of All Carry Trades) could spark a simultaneous collapse in risky assets with a concurrent a sharp rally in the Dollar. Not sure about the correction just yet, as there may be some strong support into the end of the year, and as I mentioned in my comment on 11th November (Decoding the so-called Market Rally / Economic Outlook Contradiction) there is enough logic behind asset prices to support their absolute level. I use the word absolute because, in my mind, real prices (adjusted for potential pipeline inflation) are clearly at risk… for obvious reasons…

Global Stocks to Watch:

• Looks like those results at Dell didn’t go as well as planned – stock was off 10% on Friday. Keep and eye on the upstream Techs today.
• Earnings:
  • Fubon Financial
  • Campbell’s soup. BUY! If some of the doomsters are right we should all be stocking up on soup and living in caves!
  • Hewlett Packard – note the earnings from Dell!

Economic growth is assumed to be a Good Thing, by most economists but it is responsible for most of the environmental problems that affect us, because the growth is uncontrolled and rewards greed. Economic growth is presented as a benefit to society but it is actually a cancer infecting the environment which will ultimately destroy society if we are not careful. It is necessary to find a sensible alternative to economic growth and one of the ideas out there has originated in the United States by Professor Brian Czech. He calls it the Steady State Economy and founded CASSE in order to promulgate its concepts.

You can access CASSE at http://www.steadystate.org/

CASSE is offering itself up as a candidate for $15,000 of marketing services from Free Range Studios, who made “the Story of Stuff”. If it wins it can increase awareness about the alternatives to unrestrained economic growth.

I have just voted for CASSE, and perhaps you might want to do the same. Everyone has three votes and voting is quite simple.
1. Go to this URL: http://youtopia.freerangeproject.com/
2. Click on Vote Now.
3. Click on “sign up” in the upper right corner.
4. Click on “Signup” at the lower left.
5. Enter your information, check the “Accept terms of service” box, and click the Sign Up button.
6. Click on Sustainable Living in the list of categories on the right.
7. Find “Grow better, not bigger!” in the list that appears.
8. Click on “vote”.
9. Click on 3 to answer “How many votes?”

In an address recorded in Seoul, South Korea, the President discusses his trip to Asia. He talks about his push to stop nuclear proliferation in North Korea, Iran, and around the world. He talks about promoting America’s principles for an open society in China while making progress on joint efforts to combat climate change. And talks in-depth about the primary objective of his trip: engaging in new markets that hold tremendous potential to spur job creation here at home.

Selected from Delancey Place

In today’s excerpt – historically, 85% of the increase in per capita GDP (gross domestic product or wealth) in the U.S. economy has come from innovation – the invention of new products and services or the invention of better ways to make existing products and services. It follows that any durable and sustainable program to create jobs in an economy would focus foremost on innovation:

“Since the 1950s, economists have understood that innovation is critical to economic growth. Our lives are more comfortable and longer than those of our great- grandparents on many dimensions. To cite just three improvements: antibiotics cure once-fatal infections, long-distance communications cost far less, and the burden of household chores is greatly reduced. At the heart of these changes has been the progress of technology and business.

“Economists have documented the strong connection between technological progress and economic prosperity, both across nations and over time. This insight grew out of studies done by the pioneering student of technological change, Morris Abramowitz. He realized that there are ultimately only two ways of increasing the output of the economy: (1) increasing the number of inputs that go into the productive process (e.g., by having workers stay employed until the age of sixty-seven, instead of retiring at sixty-two), or (2) developing new ways to get more output from the same inputs. Abramowitz measured the growth in the output of the American economy between 1870 and 1950 – the amount of material goods and services produced – and then computed the increase in inputs (especially labor and financial capital) over the same time period. To be sure, this was an imprecise exercise: he needed to make assumptions about the growth in the economic impact of these input measures. After undertaking this analysis, he discovered that growth of inputs between 1870 and 1950 could account only for about 15 percent of the actual growth in the output of the economy. The remaining 85 percent could not be explained through the growth of inputs. Instead, the increased economic activity stemmed from innovations in getting more stuff from the same inputs.

“Other economists in the late 1950s and 1960s undertook similar exercises. These studies differed in methodologies, economic sectors, and time periods, but the results were similar. Most notably, Robert Solow, who later won a Nobel Prize for this work, identified an almost identical ‘residual’ of about 85 percent. The results so striking because most economists for the previous 200 years had been building models in which economic growth was treated as if it was primarily a matter of adding more inputs: if you just had more people and dollars, more output would invariably result.

“Instead, these studies suggested, the crucial driver of growth was changes in the ways inputs were used. The magnitude of this unexplained growth, and the fact that it was exposed by researchers using widely divergent methodologies, persuaded most economists that innovation was a major force in the growth of output.

“In the decades since the 1950s, economists and policymakers have documented the relationship between innovation – whether new scientific discoveries or incremental changes in the way that factories and service businesses work – and increases in economic prosperity. Not just identifying an unexplained ‘residual,’ studies have documented the positive effects of technological progress in areas such as information technology. Thus, an essential question for the economic future of a country is not only what it produces, but how it goes about producing it.

“This relationship between innovation and growth has been recognized by many governments. From the European Union – which has targeted increasing research spending as a key goal in the next few years – to emerging economies such as China, leaders have embraced the notion that innovation is critical to growth.”

Josh Lerner, Boulevard of Broken Dreams, Princeton, Copyright 2009 by Princeton University Press, pp. 43-45.

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By Lina

The number of internet’s users in Indonesia has grown dramatically. It has now reached almost 25 millions in numbers. It growth more than one thousand percent by the year 2000 which is only reach two million.

Indonesia has becoming the fifth countries which is the most numbers of internet users and readers in Asia following China, Japan, India, and South Korea.

It has brought the revolutionary impact to the reader’s way to get information. People now have many alternatives to get information. Beside newspapers, they have online media which can provide the faster and easier to access during their work hours for instance.

Me as a newspaper journalist, found it as a dilemma. I am happy because the growth of the internet’s user numbers could be means that Indonesian people have a better economic growth. But, as a journalist, I was frightened that my readers will not attracted to read my story anymore because they more likely to get the information or the story from online media which is faster and easier for them.

One of consequences is the change of working mindset from one time deadline to many times deadline. As a multimedia journalist now you have to submit your stories to the newspaper and to the online media without addition salary. I just want to say that it will be too much and too hard for newspaper journalist otherwise the company has also to develop the better salary for their journalist.

Looking through some interesting data released recently (mainly bls, bea and census) and I managed to put together a couple charts are that are pretty interesting. The first looks at historic corporate profits and fixed capital information (these are from the NIPA accounts). As is obvious, fixe capital formation tracks profitability very closely. The notable departure from this trend occurred in the 1999 to 2002 era. I surmise three dynamics drove this. The first is the fact that there were many unprofitable companies (dotcoms and other service oriented no-hopers) that depressed profitability relative to gross investment. The second is the over investment in many tech oriented platforms, like software. Finally, let’s not forget the huge telco over investment at this point in time.
So the relationship reasserted itself and we had investment tracking the profit cycle very closely. Recently, however, this looks to be coming unglued. I think it may stay unglued for a while. Here is why:
First, companies need to be sure that a recovery is real before they start reinvesting. Many companies may be overlevered, so pouring cashflow into new projects may not be favorable compared to debt reduction if sales growth is not reliable. Second, and in my opinion, this is the reason, capacity utilization is so low. The capacity overhang is huge, having dipped as low as the high 60%s in durable goods. That needs to get absorbed, otherwise, there is no real need to re-invest, unless some new curve jumping technology comes along.

Polls show that the top concern for most Americans is the economy and the job market, which has led some pundits to wonder aloud why Congress is spending so much time focusing on health care rather than the economy.

What’s interesting about this is the fact that, here in the state of Minnesota, the fastest growing jobs are Nurses, Home Health Aides and PCAs (personal care assistants). Coupled with the rate at which our population is aging, it only makes sense that health care be linked with economic growth.

Minnesota served 28,000 Medicare clients in 2007 (the most recent data available). If you combine that with the PCA/waiver data it brings the total recipients of services in Minnesota to about 64,000. If you extrapolate the number of staff to client by looking at the PCA program there are 17,000 PCA recipients and 40,000 PCA provider numbers out there. That would mean there are something over 128,000 staff people working in home care and I think that number is conservative.

Of course, proposed cuts will not only stand in the way of growth, they will likely reverse it. But the cuts haven’t passed yet, so if you know someone who’s looking for a job, tell them to consider Personal Care Assistance as a career. If we can increase the number of home care workers in the field even further, we’ll have that much more power to push back with.

Ben Bernanke predicted today that the United States economy would continue its slow growth, thru the middle of next year.….his statment was an attempt to help the US dollar in financial markets……but he also acknowledged that employer’s are waiting to rehire help, trying to get as much productivity out of current workers as possible……

One must always remember that although the Fed has helped in the recession…they are always more sensitive to inflation fears…and once the economy starts to really come back they will be raising interest rates which will cool off the housing market and also affect the auto industry…tes, they’ve got quite a balancing act to perform……