MULE VARIATIONS

Tuesday, April 29, 2008

Food crisis is a chance to reform global agriculture - FT.com

Summary:
Martin Wolf on why the price of food has risen and what can be done. Weak growth of supply and strong increases in demand has caused stocks of cereals to drop to lowest levels since 80s. Price hikes not due to speculation. Supply is biggest problem. Prices will remain high until energy prices tumble. Poor most affected. Humanitarian intervention needed. Farming overly regulated. Needs to be market oriented. Move towards genetically modified food in developing countries is inevitable in order to increase productivity.(Published: 29/04/08)

Notes:

Of the two crises disturbing the world economy - financial disarray and soaring food prices - the latter is the more disturbing

high food prices threaten unrest at best and mass starvation at worst

jumps in food prices are part of a wider range of commodity price rises

forces that link prices of energy, industrial raw materials and foodstuffs

rapid economic growth in the emerging world
strains on world energy supplies
the weakness of the US dollar
global inflationary pressures

but: food now hotter issue that normal

questions: why have prices of food risen so strongly? Will these higher prices last? What action should be taken in response?
demand side:

demand for food raised due to strong rises in incomes per head in China, India and other emerging countries

notably meat and the related animal feeds

shifts in land use reduce the supply of cereals available for human consumption

rising production of subsidised biofuels

stimulated by soaring oil prices
boosts demand for maize, rapeseed oil and the other grains and edible oils that are an alternative to food crops

IMF: "although biofuels still account for only 11/2 per cent of the global liquid fuels supply, they accounted for almost half of the increase in consumption of major food crops in 2006-07, mostly because of corn-based ethanol produced in the US"

supply side:

aggregate production of maize, rice and soyabeans stagnated in 2006 and 2007

partly the result of drought
partly due to higher prices of oil, since modern farming is so energy-intensive

cereal stocks have fallen to their lowest levels since the early 1980s

due to weak growth of supply and strong increases in demand

undermines belief that speculation has driven the rising prices

if if prices were above market-clearing levels due to speculation, stocks would be rising, not falling

biggest problem is is weak medium-term growth of supply

rapid increases in yields of the 1970s and 1980s (the "green revolution") have slowed
given the stresses on water supplies, longer-term supply prospects would look poor even if diversion of land for production of biofuels were not adding to the pressure

Are prices going to remain high?

Two opposing forces are at work
First force is the market

will tend to bring prices back down as supplies expand and demand shrinks
latter is also what we want to avoid, at least in the case of the poor, since reducing their consumption is not so much a solution as a failure

Second force is the current intense pressure on the world's food system

true of both demand and costs of supply

Prices are likely to remain relatively elevated, by historical standards, unless (or until) energy prices tumble

what is to be done? answers fall into three broad categories:

humanitarian

important point: higher food prices have powerful distributional effects: they hurt the poorest the most
Increases in aid to the vulnerable, either as food or as cash, are vital
Equally important, however, is ensuring that the additional supplies reach those in greatest difficulty.

trade and other policy interventions

Protection, subsidies and other such follies distort agriculture more than any other sector
rich countries are encouraging, or even forcing, their farmers to grow fuel instead of food
present crisis is a golden opportunity to eliminate this plethora of damaging interventions
focus should be on shifting the farm sector towards the market, while cushioning the impact of high prices on the poor

longer-term productivity and production

far greater resources need to be devoted to expanding long-run supply
increased spending on research, especially into farming in dry-land conditions
the move towards genetically modified food in developing countries is as inevitable as that of the high-income countries towards nuclear power
more efficient use of water, via pricing and additional investment.

"People will oppose some of these policies. But mass starvation is not a tolerable option."

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Monday, April 28, 2008

America needs a new case for trade - FT.com

Summary:
Larry Summers on rise of anti-free trade sentiment in US. Despite economic benefits, free trade does appear to be hurting American workers. Vigorous effort needed to help those left behind. Global prosperity at expense of workers and middle classes in rich countries. This may lead to loss of support for internationalist economic policy. In order to prevent this, better alignment is needed between the interests of this group and the success of the global economy, to be discussed in part 2. (Published 28/04/2008)

Notes:

America's commitment to internationalist economic policy in doubt

significant rise in unemployment likely in months ahead due to financial crisis
presidential candidates attacking NAFTA
increasing attacks on foreign investment in US
growing support for restrictive immigration policies

typical 4-part response by conventional wisdom:

trade benefits not just producers but also consumers, and economy in general
free trade also represents good mercantilism: US already has low trade barriers, don't need to be reduced as much as those of trading partner; note: US in competition with other major economic powers, and will therefor be at a disadvantage if developing country has free trade agreement with them and not with us
most of the increase in observed income inequality due to new technology rather than increase trade; moreover most of the increase in trade not attributable to trade agreements
acknowledged that although trade is good for the economy overall, not everybody wins

needs complementing with ambitious effort to reduce insecurity and income inequality; eg universal healthcare?

All correct economic arguments

compelling case that US is better of than without free trade agreements, that world will be a richer and safer place with more economic integration

if combined with vigorous efforts to help those left behind, support for economic internationalism may be maintained

But policy debate will need to confront suspicion held by many that growing prosperity of global economy may not be in their interest

Paul Samuelson, years ago: the valid proposition that trade barriers hurt an economy does not imply the corollary that it necessarily benefits from the economic success of its trading partners

When other countries develop American producers benefit from larger export market but are faced with more competition; which effect dominates?

reasonable to think that economic success abroad hurts American workers; 3 reasons:

increased export by developing countries of goods that the US slso produces such as computers and software puts pressure on wages; at the same time, global prosperity increases rewards for the already highly paid producers of intellectual property goods such as films and music
increased global competition for energy and natural resources raising prices for Americans
most fundamental: growth of global economy encourages development of 'stateless elites'; allegiance to global economic success and own interest rather than nation where headquartered

even as globalization increases inequality and insecurity, it is usually invoked as argument against progressive taxation, support for labour unions, strong regulation, and substantial production of public goods that mitigate its adverse impact

Focus must shift from supporting internationalism as traditionally defined, to designing an internationalism that more succesfully aligns the interests working people and the middle class in rich countries with the success of the global economy

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Sunday, April 27, 2008

Quote of the Day

"The power of accurate observation is commonly called cynicism by those who have not got it." - G.B. Shaw

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Wednesday, April 23, 2008

OLEDs could soon wave lifetime woes goodbye - R&D Magazine

Summary:
Sealing of OLEDs using ion-assisted deposited passivation layer (SiON) as opposed to glue has been found to greatly increase the longevity of the displays. SiON has a lower water permeability than conventional glues, the main cause of reduced life-times of OLEDs. Note: these OLEDs are compared against unencapsulated OLEDs, not commercial benchmarks, and the results are far less impressive when this is borne in mind. Overhyped IMAO. (published: 23/04/2008)

Notes:

OLEDs promising for next generation of displays and solid state lighting

use less power
can be more efficiently manufactured
better color
capability of larger displays

lacking is an inexpensive encapsulation method to mass produce organic electronics that doesn't let moisture in
currently displays sealed in inert atmosphere or in vacuum

glass lid glued on top of display substrate
moisture absorbing powder inside

expensive and labor-intensive to assemble

Georgia Tech Research Institute (GTRI)

Wusheng Tong, senior research scientist
Hisham Menkara, senior research scientist
Brent Wagner, principle research scientist

thin film barrier, pinhole free SiON (silicon oxynitride)

ion assisted deposition
relatively inexpensive
performed at room temperature, thus keep organics material intact
50-200nm

thinner increases risk of pinholes

no sign of degradation after 7 months using SiON barrier

as opposed to 2 weeks unencapsulated, same conditions

note: this is to be expected without encapsulation

accelerated degradation tests at 50°C and 50% relative humidity

little degradation after 2 weeks

note: 2 weeks at 50°C and 50% RH not very impressive

unencapsulated OLEDs degraded immediately

note: again, this is to be expected without encapsulation

Note: these devices should be compared against an industry standard (e.g. a Kodak OLED) rather unencapsulated displays

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Tracing China's Ascent - The Globalist

Summary:
Giovanni Arrighi argues that China's economic boom is not the result of direct investment by the West or Japan, but by direct investment by Chinese overseas, mainly in Hong Kong and Taiwan. Western and Japanese corporations faced burdened with regulations, not faced by Chinese ex-pats. This dictation by the Chinese government of the terms of access to Chinese labor etc., was an essential ingredient of the success of Chinese economic reforms.(Published: 23/04/2008)

Notes:

China's attraction for foreign capital: not quantity of low-priced labour, but quality of it

health, education and capacity for self-management

foreign capital intervened late in process of development of China

mainly facilitated by Chinese diaspora capital
matchmaker between foreign capital and Chinese labour, entrepreneurs and government officials
China under Deng sought assistance of the overseas Chinese in opening China to foreign trade and investment

more fruitful alliance for Chinese government than open-door policy towards Western coroporations

kept their investments to bare minimum needed to keep foothold in China

bothered by regulations that restricted their freedom to hire and fire labour, buy and sell commodities, remit profits out of China

overseas Chinese could bypass most regulations

familiarity with local customs, habits and language; manipulation of kinship and community ties; preferential treatment received from CCP officials

investment by overseas Chinese (mainly Hong Kong and Taiwan) far exceeded that of Western and Japanese corporations

1990: Hong Kong/Taiwan: 75% of all foreign investment; Japan: 5%

investment by Japan grew rapidly after that (24% in 1993), but this followed rather than led the boom of foreign investment in China

as Chinese ascent gained momentum under its own steam in 1990s, Japanese, US and European capital flocked ever more massively to China

total foreign direct investment:

1990: $20b
2000: $200b
2003: $450b

"But if foreigners were investing, it was only because the Chinese were investing more"
foreign capital jumped on the bandwagon of an economic expansion which it neither started nor led
foreign capital needed/needs China far more than China needs foreign capital

US companies face simple imperative: invest in China to take advantage of country's cheap labour and its fast-growing economy, or lose out to rivals

before: China just manufacturing center; now: China place to develop and sell high-tech goods

capacity of Chinese government to dictate to (rather than being dictated by) foreign capital the terms of access to Chinese labour, entrepreneurship and markets has been essential ingredient of success of Chinese economic reforms

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Monday, April 21, 2008

Quote of the Day

"When there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'" King Abdullah of Saudi Arabia (21/04/08)

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Sunday, April 20, 2008

Quote of the Day

"Careful. We don't want to learn from this." - Bill Watterson (Calvin & Hobbes)

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Nano switch hints at future chips - BBC NEWS

Summary:

Molecule sized transistors made using graphene. Graphene geat conductor, works at room temperature. Challenge is to make large wafers. Other applications: displays and solar panels. (17/04/2008)

Notes:

graphene

single layer of graphite, thickness of one atom
stable and robust
transparent

Dr Kostya Novoselov and Professor Andre Geim from The School of Physics and Astronomy at The University of Manchester

first to separate sheet of graphene from graphite, 2004
leading research into potential applications of graphene in electronics

Manchester team shown that graphene can be carved into electronic circuits with individual transistors

transistors not much larger than one molecule

graphene can conduct electricity better than silicon

great conductor

graphene transistors will work at room temperature
current silicon roadmap expected to end in 2020

race to find alternative materials

biggest challenge: producing graphene sheets big enough to be used as wafers for chip production

biggest wafer produced so far: 100um
yield of working devices: ~50%
same process used as in making silicon transistors

use in display technology?

because it is transparent
transparent conductor
using small interconnecting graphene sheets together

other applications: solar panels, transparent window coatings, sensing technologies

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Saturday, April 19, 2008

I and My Brother Against My Cousin - The Weekly Standard

Summary:

Stanley Kurtz reviewing Philip Carl Salzman's "Culture and Conflict in the Middle East". Dominant theme of cultural life in Arab Middle East is the template of tribal life: collective responsibility, feuding, balanced power and honor shaping every action and thought; Islam and state merely superficial layers. Controlled anarchy. Tribal societies egalitarian and democratic. Islam: uniting all Arab tribes in ultimate feud against infidel outsiders. Western strategy for change should focus on tribal aspect not Islam; Islam sacred, tribal aspects not so and open for criticsim (14/04/2008)

Notes:

Middle Eastern tribes: think of themselves as giant lineages, traced through the male line, from some eponymous ancestor

each giant lineage divides into tribal segments, subdivide into clans, divide into sub-clans, etc down to families

traditionally Middle Eastern tribes have existed outside of the police powers of the state

keep order through a complex balance of power between these fusing and segmenting ancestral groups

central institution of segmentary tribes is the feud

security depends on willingness of every adult male in given tribal segment to take up arms in its defence; universal male militarization

attack on lineage-mate must be avenged by entire group; vice versa, any lineage member is liable to be attacked in revenge for offense committed by relative
results in system of collective responsibility: action of any one person directly affect reputation and safety of entire group; collective guilt

Muslim tribal society is both fundamentally collectivist and profoundly individualist

no man of the tribe can, by right, command another
all males equal, free to dispose of their persons and property and to speak in councils that determine fate of the group
fundamentally democratic

Arab saying: "I against my brother; I and my brother against my cousin; I and my brother and my cousin against the world"
liberal Westerners: why risk battle without first making a reasonable effort to talk problem out?

sort of question liable to be posed by someone living where a state monopolizes the legitimate use of force and police and courts can be relied upon to keep the peace
in non-state setting, where anarchy is kept under control only by the threat or use of force, it makes sense to send a war party first and ask questions later
conveying impression of weakness
preventing future abuse in lawless desert environment by publicly making capacity known to swiftly unify to preserve interests

Arab tribesmen preoccupied with maintaining deterrence and are prepared to use force preemptively

much like neocons: hawkish conservatives ("rightly") believe global anarchy underlies reality of international system; much like de facto stateless anarchy in which Bedouin Arabs live
swift and seemingly disproportionate resort to retaliatory force against apparently trivial offenses is an effective technique for surpressing future challenges
eg careful use of targeted force against Western critics of Islamism; overtly religious action actually shaped by a hidden tribal template
eg fatwa against Salman Rushdie, rage against Muhammed cartoons, killing of Theo van Gogh, ...

all examples of pro-active deterrence

doves: use of force serves to unite foe; creating impression of an infidel war against Muslims, thus recruiting every Muslim lineage into bin Laden's civilisational war party

true, but on the other hand, failure to strike back creates impression of weakness that invites further attacks
Islamists view cooing of the doves as sign that their feud against the West has successfully weakened and split our own coalition

disturbing lesson: in the absence of fundamental cultural change, the feud between the Muslim world and the West is unlikely ever to come to an end

tribal feuds simmer on and off for generations, with negotiated settlements effecting only temporary respites
Western liberal template takes an experience of peace under the lawful authority of a state as the normal human condition

in this view, when peaceful equilibrium is disturbed, reasonable men reason together to restore normalcy

in tribal template, low-level endemic feuding in conditions of controlled anarchy is the norm

liberal "come let us reason together" model has little currency in Arab tribal culture

Salzman: Tribal template is dominant pattern of Arab culture, not religion

religion is overlay in partial tension with, and deeply stamped by, the dynamics of tribal life

To think of Middle East as consisting of a number of states is mistake.

Rather, collection of tribes.
Governing party essentially tribe or tribal coalition with most power (e.g. Saddam Hussein)
Statelessness increases as one moves towards periphery of nation.
Statelessness seen by tribes as essential condition of dignity, equality, and freedom.

State = predation under official guise
Importance of avoiding dishonourable submission; avoiding life of peasant humiliation and exploitation

Salzman: tribal template dominant pattern of Arab culture

not details of tribal kinship matter, but underlying principles of "balanced opposition," in which collective responsibility, honor and feuding shape every action and thought;
quick shifts in loyalty often called for
unite with erstwhile enemies in opposition to a more distant foe
all members of an enemy group are potential targets
demand honourable behaviour from members of own group
maintain own and group's honour by a clear willingness to sacrifice for the collective good

Islam's founding triumph was to raise stakes of balanced opposition by uniting all the Arab tribes in an ultimate feud against infidel outsiders

Muslim's treating tribal era of Muhammed and his early successors as golden age of Islam
cultural influence of tribal template thus remains pervasive

Gaza's feuding clans: revelation of bedrock of Middle Eastern social organisation

ever-present and ever-influential beneath superficial layers of Islam and state

political paradox posed by Salzman's tribal interpretation of Arab culture

on one hand, pervasive tribal principles of balanced opposition are "precluding democracy" in Middle East

to democratise Middle East, the particularist loyalties at the core of balanced opposition (kin, tribe, sect) need to be replaced by greater "individualisation"
only then could an authentic liberal democracy based on constitionalism and the rule of law take root in the Arab world

on other hand, tribal culture is largely egalitarian, individualist and democratic in character

balanced opposition is democratic because decision making is collective and everyone has a say
absence of government authority, combined with system of shifting coalitions of willing individuals, means that freedom, equality and personal responsibility - along with bellicosity and courage - are fundamental tribal values

confusion about meaning of words "freedom," "equality," and "democracy"

in liberal state, freedom is rights-based and universal
in tribal society, freedom is freedom of freestanding warrior and his tribe to dominate and deprive others of their liberty

equality refers to equal combat, as opposed to submission
democracy is closer to a conclave of family heads in the Godfather, never far from potential violence, than to debate in a modern representative assembly
not equality before the law, but equality outside of the law

democracy requires something more fundamental than open consultation between descriptively free and equal parties

Arabs know all about freely expressing their opinions in open council, yet have fundamental reservations about entering into the sort of social contract required to create a modern liberal state

largely justified: state offers only thin alternative to "the war against all"
most Middle Eastern states are just reincarnations of the predatory winner-take-all tribal coalitions of old
why exchange protection of your family, tribe or sect for submission to a weak or predatory state?
"tribal society contains just enough order to make a bit of violent anarchy bearable, and just enough grasping anarchy to make a liberal social contract unreliable"

won't be easy to weaken cycle of particularism, ie the self-reinforcing loyalties of extended family, tribe and sect that dominate Arab countries at both state and local levels
West needs to learn to understand and critique the Islamic Near East through a tribal lens

Islam is only half the cultural battle
tribal practices, however, are less swathed in sacredness than explicitly Koranic symbols and commandments

therefore more susceptible to criticism and debate

new and smarter strategy for change

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Thursday, April 17, 2008

Quote of the Day

"I know that most men, including those at ease with problems of the greatest complexity, can seldom accept the simplest and most obvious truth if it be such as would oblige them to admit the falsity of conclusions which they have proudly taught to others, and which they have woven, thread by thread, into the fabrics of their life". - Tolstoy

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Tuesday, April 15, 2008

The financial system: What went wrong - Economist.com

Summary:

Economist special briefing looking at Wall Street near-collapse and future changes in financial system; financial services industry racing ahead when economy slowed down; causes and consequences; incentives and regulation (19/03/2008)

Facts and Figures

American financial services industry

share of total corporate profits

1980: 10% ; 2007: 40%

share of stockmarket value

1980: 6%; 2007: 19%

accounts for 15% of America's gross value added
accounts for 5% of private-sector jobs

value of outstanding credit default swaps: $45tr (2008)

financial sector debt vs. non-financial debt

1980: 1:10; 2008: 1:2

Leverage of banks

Goldman Sachs: $1.1tr assets on $40bn equity

Merrill Lynch: $1tr assets on $30bn equity

Notes:

American financial services industry from early 1980s to 2007

share of total corporate profits from 10% to 40%
share of stockmarket value from 6% to 19%
account for only 15% of America's gross value added
account for only 5% of private-sector jobs

1982 to 2000, unparalleled bull market for shares and bonds
something changed in 2001, after bursting of dotcom bubble

America's GDP growth since then been weaker than in any cycle since 1950s
growth in consumer spending, total investments and export been correspondingly feeble

but financial services industry did not slow down; raced ahead of real economy ("as ground beneath it fell away")

industry been able to boost income and profits by using debt, securitisation and proprietary trading

investors (hungry for yield) went along

industry has further combined computing power and leverage to create burst of innovation

value of outstanding credit default swaps at $45tr
financial sector debt vs. non-financial debt

1980: 1:10; 2008: 1:2

investment banks trading heavily on own debt accounts

Goldman Sachs: $40bn equity as foundation for $1.1tr assets
Merrill Lynch: $30bn equity for $1tr assets
"In rising markets, gearing like that creates stellar returns on equity. When markets are in peril, a small fall in asset values can wipe shareholders out."

Banks' course made possible by cheap money, in turn facilitated by low consumer-price inflation

central banks have conspired with banks' urge to earn fees and use leverage

previously, credit controls or gold standard restricted creation of credit

as result of liquidity and "financial firms' thirst for yield," boom in American subprime mortgates

tendency for financial services to go over cliff is accentuated by financial assets' habit of growing during booms

by lodging their extra assets as collateral, intermediaries can put them to work and borrow more
since 1970s, debts have grown faster than assets during booms
banks using borrowed money to buy more of the securities they lodged as collateral; raises prices of the those securities; enables banks to raise more debt and buy more securities

"pro-cyclical leverage" feeding on itself
banks get punished by shareholders if they sit out next round
"bank trapped in a dance it cannot quit; but sooner or later music stops"

mechanisms that create abundant credit will eventually also destroy it

"most things attract buyers when price falls, but not necessarily securities"
financial intermediaries need to limit their leverage in falling market; sell assets; lowers price of securities; puts further strain on balance sheets leading to further sales; continues until those without leverage will buy

cycles not necessarily result of poor monitoring or huge incentives; human nature; competing with star trader next door

but pay and lack of regulation probably made this crisis worse; proper incentives needed

prediction that in future senior executives will face prospect of some of their bonuses being contingent on bank's performance over several years

but is already the case: many senior bankers paid in shares they cannot immediately sell
e.g. Bear Stearns' employees owned third of company; already looking to longer term

more regulation?

regulation does not just offer protection, but also clever ways to make money by getting around it
capital reserve requirements set up incentive to create structures free of capital burden (e.g. 364 days credit, "not permanent")
hundreds of billions of dollars in SIVs and conduits to get round the rules
reformed capital adequacy rules needed, monitor this shadow banking rigorously
gaming on boundary between AAA and other bonds, passing off poor credit as AAA, making a lot of money, for a while

financial industry likely to stagnate or shrink in next few years

partly because last phase of its growth was founded on unsustainable leverage
partly because value of underlying equities and bonds unlikely to grow as in 1980s and 1990s
foolish regulation may make it worse

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Quote of the Day

"Eagles may soar, but weasels don't get sucked into jet engines." - John Benfield

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China 'now top carbon polluter' - BBC NEWS

Summary:

Report in Journal of Environment Economics and Management suggest China overtook the US in 2006-2007 as top greenhouse gas emitter. Warns that unchecked future growth will dwarf any emission cuts made by rich countries under Kyoto. (14/04/2008)

Notes:

Univ of California researchers reporting in Journal of Environment Economics and Management
China surpassed US greenhouse gas emissions in 2006-2007
report warns that "unless China radically changes its energy policies, its increases in greenhouse gases will be several times larger than the cuts in emissions being made by rich nations under the Kyoto protocol"
current computer models substantially underestimate future emissions growth in China
"all those concerned about climate change agree that China's emissions are a problem - including China itself"
China and UN insist that rich countries with higher per capita levels of pollution must cut emissions first and help poorer countries to invest in clean technology
America's per capita emissions five to six times higher than China's
Auffhammer: "There is no sense pointing a finger at the Chinese. They are trying to pull people out of poverty and they clearly need help. The only solution is a massive transfer of technology and wealth from the West."

"an eventuality which is unlikely"

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Horrors of a 'Crisis' - Washington Post

Summary:

George Will calling talks of "crisis" exaggerated and typical for presidential elections (need dragons to slay). Early retirement should not be considered a given; Q1 2008 drop of 9.9% in S&P500 not alarming; drop in house prices allows first-time buyers onto ladder (13/04/2008)

Facts and Figures:

S&P500 contractions:
- 2008 Q1 : 9.9%
- 1998 Q3: 10.3%
- 1990 Q3: 14.5%
- 1987 Q4: 23.2%
- 1932 Q2: 39.4%

Notes:

percentage people working aged 55 to 64 rose 1.5% from April 2007
Wall Street Journal: "prospect of millions of grandparents toiling away in their golden years doesn't square with the American dream."
Will: "idea that protracted golden years of idleness are a universal right is a delusion of recent vintage."
Congress, 1935, enacted Social Security; retirement age set at 65, then life expectancy of average male
- compare life expectancy today: 75 years
standard definition of recession: two consecutive quarters of contraction
- 9.9% first quarter decline of S&P 500 not remarkable
- Q3 1998: 10.3%, Q3 1990: 14.5%, Q4 1987: 23.2%; all without long-term trauma

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Monday, April 14, 2008

Quote of the Day

"Even if you're on the right track, you'll get run over if you just sit there." - Will Rogers

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China raises GDP growth to 11.9 percent - Boston Globe

Summary:
National Statistic Bureau report; China's GDP ($3.61tr) and growth (11.9%) in 2007; price inflation at 8.7% (10/04/2008)

Facts and Figures:

China

GDP in 2007: 24.95tr yuan, $3.61tr

GDP growth

2007: 11.9%

2006: 11.6%

2008: 9% (forecast)

Price inflation Feb 2008: 8.7%

Highest in 12 years

Germany's

GDP (2007): $3.8tr

GDP growth (2007): 2.5%

Notes:

China's GDP growth in 2007 revised upwards to 11.9% (11.6% in 2006)
China (GDP $3.61tr) close to overtaking Germany (GDP $3.8tr) as world's third largest economy
China remains much poorer per person
China's growth been greater than 10% for last 5 years
2008 forecast: 9% due to global slowdown and falling export growth
Beijing concerned with slowing down growth
Central bank raising interest rates to cool price pressure (February inflation 8.7%, highest level in 12y)

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Sunday, April 13, 2008

The political threats to globalisation - FT.com

Summary:
Gideon Rachman on risks to globalisation; globalisation was made possible by political changes at first; now political changes are threatening globalisation; modern timeline of globalisation, 1978-1991. (07/04/2008)

Notes:

Most people, globalisation ~ economics, technology and business
Globalisation was made possible by political changes first; underpinned by political consensus; now political changes are threatening globalisation
political elites struggling to convince citizens that globalisation doesn't just benefit the rich; losing this argument in any of the major world economies may jeopardise political consensus
political consensus recent creation; took place in very short period of time: 1978 to 1991, i.e. less than 15 years

1978: Deng Xiaoping's reforms; China turns from Maoism to market; most important development
1979: Thatcher takes power; abolition of foreign exchange controls; London's rise as global financial centre
1980: Reagan takes power; deregulation and tax cuts; huge boost to market ideology around the world
mid 1980s: creation of single market in EU
1980s: discrediting of protectionist populists in Latin America
1989: collapse of Berlin wall; Eastern Europe and Russia join globalisation game
1991: India moves away from regulation and protectionism

As a result, now feels as natural doing business in Beijing, Moscow and Delhi as in London and New York
Could this period of globalisation end, like it did in 1914 and 1930s?
Most obvious threat: crisis in most important political and economic relationship in the world, between US and China
Risk in Chinese-American relations is of miscalculation, clash that escalates into something that does real damage; combination of looming recession in US, presidential election and Beijing Olympics are formula for potential trouble
Other threats (long-term): terrorism and climate change; globalisation depends on ease of travel!
Biggest risk: politicians losing argument for globalisation; 10 years ago, narrow majority in US in favour of globalisation, now majority against; politicians reacting to this shifts, eg. Democrats taking sceptical line on free trade, Republicans against illegal immigration, Sarkozy arguing for protectionism on EU level
Indian government lost general election largely because poor, rural voters felt left out by boom; in China, authorities anxious about rural unemployment, environmental protests and wealth gap between rich coasts and poorer inland regions
rising world food prices, sense that poor have lost out as a result of globalisation

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Glued together by their lies - Literary Review

Summary:
Gillian Tindall's review of "A dangerous liaison" by Carole Seymour-Jones. Describes Sartre and Beauvoir's union as fake. Sartre sexually exploiting young women that Beauvoir provided so as to keep up the appearance of a union. One of these women later committed suicide, two became drug addicts and another permanently traumatised. Beauvoir had affair herself. Labile sexuality. Sartre and Beauvoir are also alleged to have exaggerated their role in the resistance during WWII. (04/2008)

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An American in Beijing - The Globalist

Summary:
Lauren Konopacz on the benefits of studying abroad and in China in particular. (04/04/2008)

Notes:

"Self" is simply "set of beliefs and assumptions about life that are the products of such as social group, economic class, family background and national culture. Foreign experience allows students to recognize these assumptions in both their host culture and their own." Re-examining assumptions of own lives and assumptions of society belonging to.
"Globalization has rendered today's world absolutely in need of people with cultural experience other than their own."
"Just as an art history student must forgo their textbook to go to the museum in order to best experience a work of art, a student of culture or language must forgo their text book to go abroad in order to best experience that culture or language."

Facts and Figures:

US Senate Resolution 308, 11 Nov 2005: lists several reasons why international experience is important for both the students and the US as a whole;

eg. "federal agencies, educational institutions and corporations in the United States are suffering from a shortage of professionals with international knowledge and foreign skills";

eg. study abroad programs "empower students to better understand themselves and others through a comparison of cultural values and ways of life."

China receiving 5.3% of US exports; 21% of its exports go to US, equal to 15.9% of total US imports; US is China's top export partner
China's average yearly GDP growth: relatively steady 10-11%

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Why Every Employee Needs a Global Mindset - The Globalist

Summary:
Second excerpt from "The Quest for Global Dominance," by Anil Gupta, Vijay Govindarajan and Haiyan Wang. Companies that want to be market leaders need to cultivate global mindset in all its employees. Importance of selection, demographic makeup, promotion decisions. (03/04/2008)

Notes:

Global mindset obviously needed for employees managing activties that span borders (e.g. global product manager, employees facing foreign customers/suppliers/colleagues) Greatest value added by/highest return from global mindset at senior levels.
However, even employees with purely local responsibilities need global mindset. Even assembly workers should develop own "global learning communities"
Global mindset in every employee needed for creation of global learning organization. Does not need to equally strong across entire spectrum of employees.
If company's goal is to capture and sustain global market leadership in its industry, necessary to regard development of global mindset as a goal encompassing all units and all employees.
Global mindset needs to be cultivated, ceaseless journey. Cultivating curiosity and openness about the world.
Company's greatest degree of freedom lies at the point of selection, managing its demographic makeup and promotion decisions.
"Promotion decisions to senior executive levels that place high value on global experience and global mindsets also have a corollary effect in terms of sending strong signals regarding the increasing criticality of openness to and curiosity about diverse cultures and markets."
Market opportunities, critical resources, cutting-edge ideas and competitors not just lurking around corner in home market, but increasingly in distant and often little-understood regions of the world. Cultivating global mindset essential for company to exploit these opportunities and tackle accompanying challenges.

Expand notes

Cultivating a Global Mindset - The Globalist

Summary:
Excerpt from "The Quest for Global Dominance," by Anil Gupta, Vijay Govindarajan and Haiyan Wang. Not sure what the global dominance is about, but discusses some interesting concepts. Cultivating a global mindset (vs. parochial and diffuse mindsets). Update: global dominance refers to companies wanting to become global market leaders (02/04/2008)

Facts and figures:

Mobile subscribers in China (2007): ~500m
Internet users in China (2007): >200m

Notes:

Global mindset: "combines an openness to and awareness of diversity across cultures and markets with a propensity and ability to synthesize across this diversity.
Global manager: open-minded; respect how different countries do thing and understand why they do them that way; however, don't passively accept it, push the limits of culture; finding opportunities to innovate through "the debris of cultural excuses"
Diffuse mindset: some people in firm may have global mindset, but is not philosophy of the whole firm; behaves parochial.
Microsoft in Chinese market: example of global mindset
China promises huge market but is accompanied by perils (e.g. software piracy, unpredictable public policy, local enterprises favoured)
Sophistication level Chinese market in many respects lagging behind, but leading in some (e.g. 2007: mobile subscribers, 500m, and internet users, 200m)
Global mindset enables company to outpace rivals in assessing market opportunities, establishing market presence necessary to pursue worthwhile opportunities, converting presence across multiple markets into global competitive advantage
central value of global mindset: enabling the company to combine speed with accurate response; having an insight into the needs of the local market + being able to build cognitive bridges across these needs and between these needs and the company's own global experience and capabilities
prisoner of diversity: intimidated by enormous differences across markets and staying back
companies that stay local (eg. nursing homes, hospitals, radio stations, cleaning services, ...) may benefit from global mindset, too: 1) benchmarking and learning from product and process innovations outside domestic borders; 2) alertness to entry of foreign competitors in local market (eg. a global consolidator acquiring a local competitor and changing the rules of the game)

Expand notes

Quote of the Day

"Most men are within a finger's breadth of being mad." - Diogenes the Cynic

Expand notes

Wednesday, April 9, 2008

Carbon Dioxide Removed From Smockstacks Could Be Useful In DVD And CD-ROM Manufacture - ScienceDaily

Summary:
Carbon dioxide removed from smokestack emissions in order to slow global warming in the future could become a valuable raw material for the production of DVDs, beverage bottles and other products made from polycarbonate plastics. Two presentations at the ACS 2008 meeting were dedicated to the topic. Polycarbonates have great potential for use in removing carbon dioxide from the environment. Estimates are that it's a matter of a few years before CO₂-derived polymers are available to the public. (Published: 09/04/08)

Notes:

ACS meeting, April 8, 2008

two presentations on trapping CO₂ into carbonates and urethanes to avoid release of many million tons into the environment

Thomas Mueller, RWTH Aachen:

"Carbon dioxide is so readily available, especially from the smokestack of industries that burn coal and other fossil fuels. And it's a very cheap starting material. If we can replace more expensive starting materials with CO₂, then you'll have an economic driving force."
"Millions of tons of polycarbonates already are sold each year with the volume rising. Perhaps no other consumer product has such a great potential for use in removing carbon dioxide from the environment."

are the mainstay for producing eyeglass lenses, automotive headlamp lenses, DVDs and CDs, beverage bottles, and a spectrum of other consumer products

"Using CO₂ to create polycarbonates might not solve the total carbon dioxide problem, but it could be a significant contribution."
"I would say it's a matter of a few years before CO₂-derived polymers are available to the public."

Toshiyasu Sakakura, Institute of Advanced Industrial Science and Technology in Tsukuba, Japan

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Monday, March 31, 2008

Chaos on Wall Street - CNNMoney.com

Summary:
Allen Sloan describing how the current economic slowdown is fundamentally from others (except one) and what the implications are. Difference lies in that normally the economy slows down first, creating financial problems. This time, it's the markets bringing down the economy. Only other time this has happened was 1929. Fed's attempts to reassure markets by cutting rates isn't working. Inter-bank credit markets have dried up due to fear, losses and uncertainty. Commercial banks, not investment banks are Fed's responsibility, but can let the financial system fail. Difference in ethos between commercial banks and investment banks. Fed attempting to bail out investment banks with tax payers' money. Low interest rates, weakening dollar, rescue packages and emergency loans for banks, ... Wall Street enablers of the mortgage mess and other financial excesses are able to escape the full cost of their folly, while the public picks up the cost. US financial institutions will emerge from this episode weakened compared with those in the rest of the world. (Published: 31/03/08)

Notes:

current slowdown different from other slowdowns

it is the markets slowing down the economy

normally, the economy goes bad first, which then creates financial problems

crucial distinctions, because markets are harder to fix than the economy
Alan Meltzer: it is an unusual situation, but not unprecedented

precedent: 1929

was followed by the Great Depression

25% unemployment, social unrest, mass hunger, millions of people's savings wiped out in bank collapses

Great Depression is not going to happen this time

1929 slowdown morphed into a Great Depression in large part because the Fed tightened credit rather tan loosening it
is why Bernanke's Fed is cutting rates rapidly and throwing everything but the kitchen sink at today's problems

However: Bernanke's rate cutting isn't working

markets where the financial institutions borrow, lend and trade among themselves have been paralysed by losses, fear and uncertainty

you can't get rid of losses, fear and uncertainty by cutting rates!

the giant institutions are feared to death

had to come back time after time and report additional losses on their securities holdings after telling the market that they had cleaned everything up

"it's whack-a-mole finance - the problems keep appearing in unexpected places"

had problems with MBS, CDOs, CLOs, financial insurers, SIVs, asset-backed commercial paper, auction rate securities, liquidity puts, ...
they realise that if you don't know what's in your own portfolio, how can you know what's in the portfolio of people who want to borrow from you?

in addition, big firms are short of capital because of their losses and are afraid of not being able to borrow enough short-term money to fund their obligations
conclusion: credit has dried up

investment banks vs. commercial banks

commercial banks are obliged to take the long term view

mess up and you have no reputation, no bank, no job
heavily supervised by the Fed

investment banks

different ethos prevails

if you take big, even reckless bets and win, you have a great year and get a great bonus
if you lose money, you lose your investor's money rather than your own

and you don't have to give back last year's bonus

loosely supervised by the SEC

Fed trying to reassure the markets by inventing new ways to inundate the financial system with staggering amounts of short-term money

much of this money is available not only to commercial banks (Fed's responsibility), but also the investment banks

normally aren't allowed to borrow from the Fed

tax payer is paying for all this

e.g. Fed extends $500b of emergency loans to firms in need of short-term money

they're paying around 2.5% interest to Fed
is way below what they'd pay to borrow in the open market, if they could borrow
difference between the open-market price and the 2.5% is paid by the tax-payer

is better than letting the system collapse

but it's a serious subsidy to outfits that made a lot of money on the way up and are now whining about the losses

private profits, socialized losses

has a blackmail kind of feel to it

economy held hostage by investment banks

Fed has fronted $29b to Bear Stearns, which in turn offloaded $30b of its financial toxic waste into a fund run on the Fed's behalf

those securities aren't worth $29b, otherwise JP Morgan wouldn't have needed the Fed's money
Fed - i.e. taxpayer - is paying the difference between $29b and whatever the stuff is worth

Wall Street enablers of the mortgage mess and other financial excesses are able to escape the full cost of their folly, while the public picks up the cost

good news: sooner or later all this money thrown at the debt markets will stabilize thngs

but cost will be steep
"those of us who have been prudent, lived within our means, and didn't overborrow are paying a huge price for this."

income on Treasury bills, money funds and cash deposits has dropped sharply owing to the Fed's rate cuts
wealth has eroded relative to foreign currencies and commodities

loss of faith in the dollar by foreign creditors is direct result of the Fed cutting short-term rates

has helped run up the price of commodities that are priced in dollars
may in turn be stirring up inflation

will get harder and harder to finance country's trade and federal budget deficits

with falling dollar carrying such low interest rates

US financial institutions will emerge from this episode weakened compared with those in the rest of the world

Expand notes

Sunday, March 30, 2008

The Sting of Poverty - Boston Globe

Summary:
Drake Bennett on Charle Karelis' take on poverty. Traditional economics doesn't apply to the poor. Seeing world not in terms of goods to be consumed but problems to be alleviated. Bee sting metaphor. Need to reduce number of economic hardships the poor have to deal with. No strings attached. (30/03/2008)

Notes:

Economists: poor people have strongest incentive to subscribe to a Puritan work ethic: each dollar earned worth more than to someone with higher income

Opposite seems to the case: poor are disproportionately likely to drop out of school, have children in their teens, abuse drugs, commit crimes, not to save money, not to work

Different interpretations

Social conservatives: poor people lack smarts/willpower to make right choices

Social liberals: racial prejudice and crippling conditions of ghetto to blame; denying poor any choice in their fate

Neoconservatives: antipoverty programs to blame, bribing people to stay poor

Charles Karelis (George Washing University): traditional economics doesn't apply to poor:

when poor, economic worldview shaped by deprivation, seeing world not in terms of goods to be consumed by as problems to be alleviated

Bee sting metaphor: person with one sting highly motivated to get it treated; person with multiple stings does not have much incentive to get one sting treated, other will still throb; the more of a painful or undesirable thing one has (ie the poorer one is) the less likely one is to do anything about any one problem
Poverty less a matter of having few goods than having lots of problems
Poverty and wealth not two ends of spectrum, but fundamentally different experiences, each working on human psyche in its own way

at some point between the two, people stop thinking in terms of goods and start thinking in terms of problems; enormous consequences

economists by and large well-of, failed to see this shift

antipoverty initiatives all along ideological spectrum unlikely to work; economists and poverty experts need to reconsider "scarcity," one of most basic ideas in economics
Econ 101 created tired, phony debate about cause of poverty
Karelis taking issue with law of diminishing marginal utility (the more we have of something, the less any additional unit of that thing means to us)

applies in many cases but logic flips when dealing with privation rather than plenty

dents in car, dishes in sink

Karelis: being poor = having to deal with a multitude of problems; even if one works hard enough to pay off half of costs, some fairly imposing ones still remain, creating large disincentive to bestir oneself to work at all
Karelis: core of proble not self-discipline or lack of opportunity; cause of poverty is poverty
policy makers worried that the more aid government gives the poor, the less likely they are to work to provide for themselves (the "helping conundrum")
Karelis disagrees: reducing number of economic hardships that poor have to deal with makes them more, not less, likely to work

simply giving the poor money with no strings attached rather than using it to try to encourage specific behaviors would be just as effective, with less bureaucracy

early 1970s study: aid tends to discourage work

Karelis: data from that experiment ambiguous

Expand notes

Nationalism at core of China's angry reaction to Tibetan protests - International Herald Tribune

Summary:

Jim Yardley on perceptions by Chinese people of protests in Tibet and Western media coverage; underminin of Olympic Games; inflaming nationalist sentiment; China cannot be divided; Tibetan ingratitude for years of subsidies, benefits and investment (30/03/2008)

Notes:

reaction of people: "government is being weak and cowardly," "Dalai Lama trying to separate country, not acceptable"
- Chinese officials' labelling of Dalai Lama as "jackal," "terrorist" response to people's sentiment; call for "People's War" to fight separatism of Tibet
- government trying to position itself as defender of motherland; playing to national pride and insecurities
- but Chinese people want to see tougher stance still
China wants to present welcoming image to world, with Olympics in 5 months time
- playing nationalist card not without risk
state media inundating public with reports from Lhasa about suffering of Han Chinese merchants and brutal deaths of Chinese citizens; no coverage about Tibetan grievances
- government fanning racial hatred?
- effect is to sharpen domestic ethnic tensions (rather than external focus, e.g. Japanese)
government steering and inflaming nationalism, or nationalistic public attitudes beyond gov't control?
many Chinese (home and abroad) viewing increasing attacks on China as attempt to undermine Games
- Darfur, global warming, air pollution, human rights, Taiwan, Tibet
Tibet usually low profile issue in China, compared to e.g. Taiwan
- but many see it as attempt to split the country
Wen Jibao: China willing to talk to Dalai Lama if he gives up desire for independence + acknowledged that Tibet and Taiwan are inseparable from China
internet filled with angry comments about meeting between Pelosi and Dalai Lama
- "Chinese people on verge of taking to the streets"
Tibet crisis shows leadership has stepped back into the party's harsher past
- Buddhist monks in Tibet subjected to punitive "patriotic education" campaigns
- language used is Cultural Revolution hyberbole
- propaganda machine operating in full gear
- leadership lack of confidence?
since government has shrugged off socialist ideology and made economic development country's top priority, nationalism new state religion
Sun Yat-sen
- Chinese revolutionary
- described country's 5 ethnic groups: Han (92%), Manchu, Hui, Mongolian and Tibetan
- "five fingers" of China; without one, country not whole
nationalism as an ideology to keep China together
many Chinese see Tibetan protests as attack on core identity; attack on state, but also attack on what it means to be Chinese
- Chinese nationalist sentiment inflamed by perceived Western sympathy for Tibetan protests
- anger focused on foreign media
- media perceived more sympathetic to Tibetans in Lhasa than Chinese who lost lives and property in riots
- mislabelling of photographs showing Nepalese police beating Tibetan protestors as Chinese
- but government refused to allow media into Tibet
Chinese nationalism in past has led to violence
- cfr anti-Japanese protests; government had to intervene after first manipulating it
for most Chinese, bottom line is you should never divide China
little known in China about Tibet's different interpretation of its history
- regard Tibetans as having been granted special subsidies and benefits because of ethnic status
- years of building roads, high-altitude railroad and other infrastructure
- protests come across as ingratitude
- Tibetans taking advantage of Chinese tolerance towards all sorts of religions

Expand notes

Darwin on my mind - Literary Review of Canada

Summary:

Michael Ruse reviewing "Why Think? Evolution and the Rational Mind" by Ronald de Sousa; thinking is expensive; why think? making choices and the social aspect; Wason test: can't solve simple problems; Plantinga and Darwin's doubt; confidence in our mathematical abilities (March 2008)

Notes:

most organisms do not think; most organisms certainly not rational; yet they do alright
rationality not necessarily key to success
thinking is expensive

requires big brains; in turns requires lots of protein, "which, outside modern yuppie societies generally means meat"
Jack Sepkoski: "I see intelligence as just one of a variety of adapations among tetrapods for survival. Running fast in a herd while being as dumb as shit, I think, is a very good adaptation for survival."

Why do we think?

Ruse: need to make more choices
more choices need to be made because humans have moved into realms where things change constantly (food availability, temperature ranges, predator threats,...); also can't go it alone: choices involving working with others
few offsprings due to cost of producing thinkers; ensuring survival of offspring requires more thinking

"As we - and, for much of the journey, other higher mammals - went down the path of big brains, we became better able to be thinkers but more dependent on being thinkers"

selection produced slightly better brains that led to success and so forth

de Sousa: human thought not like the calculation of a perfect, all-purpose computer

we think well in situations where thinking well might be of benefit, and not so well when thinking is irrelevant
e.g. Wason test

Alvin Plantinga: what counts in evolution is success and not the truth

so how can we ever be sure of the truth? perhaps none of our thoughts can tell us about reality; perhaps all like beings in a dream world
"Darwin's doubt": Darwin: "With me the horrid doubt always arises whether the convictions of man's mind, which has been developed from the mind of the lower animals, are of any value or at all trustworthy. Would anyone trust in the convictions of a monkey's mind, if there are any convictions in such a mind?"

de Sousa

our mathematical abilities cannot be result of natural selection; mathematics part of our present rather than our evolutionary past;
"mathematics can uncover aspects of the universe of which neither the usefulness nor even the existence could possibly have been manifested in the Environment of our Evolutionary Adaptations in which the basic function of the brain were being shaped by natural selection"
hard to see how it works so well (solution of all sorts of technological and scientific problems) if it isn't true

de Sousa on irrationality

we sometimes flub even quite simple calculation;
e.g. probability of having cancer that affects 0.01% of population having been diagnosed using a test with 98% reliability:

we panic, but probability is less than 0.5%

"We can work work out the right answers, but it is not easy - and there is a good reason why it is not easy. Human reason is a faculty evolved to help us survive in certain contexts, rather than reach the truth on every occasion, and historically we have rarely been challenged to work things out at such abstract levels."
Note to self: this sounds much like Sunnstein's talk on worst-case scenarios

Expand notes

Wednesday, March 19, 2008

History lesson - Economist.com

Summary:

Comparison between current financial crisis and Nordic crisis; similar in terms of boom and bust; different in terms of complexity of financial system then and now; Bear Stearns; blurring boundary between insolvency and illiquidity (19/03/2008)

Notes:

Fed's $30b temporary shows role central bank now much wider than used to be
Bearn Stearns was deemed to central to complex web of America's financial system to be allowed to fail
financial crises in poorer countries tend to be deeper and more costly

Argentina (1980s): 55% of GDP to fix
Finland (1990s): 8%

banking crisis Norway: similarity with current crisis;

bust followed economic and asset-price booms fired by deregulation of credit, low interest rates and lax supervision
when it became apparent three biggest banks were insolvent, they were privatised
state actually made profit
Denmark avoided storm by applying stricter capital rules

these days much harder for regulators to which banks are insolvent

bad debt hidden within complex securities, value of which is almost impossible to measure when markets dried up
trouble lies as much with financial markets as with banks that trade in them

growing complexity of links between banks is reason why BS could not be left to collapse, though 15 years ago would not have worried regulators
BS demise also shows boundary between illiquidity and insolvency fast dissolving

sold for a fraction of book value after being shut out of lending markets; yet not clear whether it was insolvent (ie assets worth less than it owned)

more banks may fall into liquidity traps that snared BS and Northern Rock

due to entanglement of short-term funding and long-term derivatives

opportunity for government to buy assets at huge discount

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Monday, March 10, 2008

Sins of Emission - Wall Street Jornal

Summary:
Dieter Helm (Oxford) claims that the apparent decoupling of economic growth and emissions in the West (slowing CO2 output growth) is smoke and mirrors. The West has outsourced its carbon emissions to China and India. China is energy-intensive but highly export oriented. West consumes its products, therefore the West "owns" the emissions. European Commission's proposal to cut carbon emission by 20% by 2020 is not far-reaching enough. Cost of halting global warming will be far greater than believed. Living standards in the West will have to be significantly reduced if goal is to be achieved. The West is living beyond its - and the planet's - means. (Published: 10/03/08)

Notes:

Kyoto framework

looks at the emissions that countries produce within their border
seductively flattering

both the US and Europe have seen their CO2 output growth slowing even as economic growth has marched on
it might appear that economic growth and emissions have been decoupled

smoke and mirrors!

projected growth of global emissions clearly tracks the growth of energy demand
world's CO2 output is likely to increase by 50% by 2030

paralleling the growth of energy demand and economic growth
no global decoupling!

US and Europeans say this is because of China and India and their failure to match our emissions reductions

US insists that any post-Kyoto agreement must at a a minimum involve emissions caps on China as well
indeed, there will be no solution to global warming if China builds 1,000 new coal power stations in the next couple of decades

Only half the right

critical question: "Who owns the emissions?"
China is an energy-intensive, export-oriented country

makes many of the highly polluting industrial products which used to be made in the US and Europe

We have exported our smoke-stack industries to developing countries like China and import their products!
if this carbon outsourcing is factored back in, UK's impressive emissions cuts over the past two decades don't look so impressive anymore

rather than falling by 15% since 1990, they actually rose by around 19%

US and EU together account for nearly half of world GDP

it is consumption, not production, that matters
if global warming is to be limited, the US and Europe will have to take much more drastic action to reduce those emissions embedded in their own consumption
their appropriate emissions-reduction targets will have to be based on the consumption of goods that cause those emissions in the first place

conclusions

true scale of required emissions reductions in the Western world will be much higher
impact on economic growth and living standards will be more severe in the West than so far believed

US and Europe refuse to acknowledge that halting the relentless rise in the concentration of greenhouse gases in the atmosphere will take a significant slice out of economic growth

living standards will have to be cut if our consumption is going to be environmentally sustainable
we are living beyond our - and the planet's - means
politicians should stop pretending that the enormous challenge of decarbonizing the major economies can be done on the cheap

Expand notes

Friday, February 1, 2008

Lessons From 2007: A Baker's Dozen - RealMoney

Summary:
Barry Ritholtz with some lessons learned about markets from 2007. Ignore market rumours. Buy sector strength and avoid sector weakness. Never blindly follow the big money. Day-to-day stock action is mostly noise. P/E matters less than you think. Ignore deteriorating fundamentals at your peril. Nothing is more costly than chasing yield. Know what you own. Simple is better than complex. Stick to your core competency. Fess up. Never forget risk management. The trend is your friend. (Published: 01/02/08)

Notes:

Ignore market rumors

Sometimes the big bucks don't even have to make the buy, they need only have to be rumored to be kicking the tires.

That was never truer than in 2007.
It seemed every time some firm was in trouble, the same gossip was floated that Warren Buffett was about to buy them. Time and again, these tales proved to be unfounded money-losers.

Buy sector strength (and avoid sector weakness)

It's a truism of real estate: It's better to own a lousy house in a great neighborhood than a great house in a lousy one.

The same is true for stock sectors: Buying mediocre companies in great sectors generated positive results, while great companies in poor sectors struggled.

The losers are obvious: The homebuilders, financials, monoline insurers and retailers all struggled this year.

Goldman Sachs (GS ) is a perfect example. Despite record revenue and earnings in 2007, the stock was up less than 15% in 2007. In 2006, on much weaker revenue and profits, shares climbed more than 50%. Great house, bad neighborhood.

The winners? Anything related to agriculture, solar energy, oil servicing, industrials, software, exporters, infrastructure plays -- even asset-gatherers thrived. Stocks in these groups consistently showed up in the 52-week-high list.

Never blindly follow the "big money"

Because professionals make dumb mistakes too.
2007 saw a number of surprise investments where so-called smart money bought big chunks of troubled companies

Bank of America (BAC) buying a chunk of Countrywide (CFC) being Exhibit A.
Many people chased the so-called smart money into these trades.
Unfortunately, all of these trades have proven to be jumbo losers. If this keeps up, the "smart money" may need to start looking for a new nickname.

Day-to-day stock action is mostly noise

Markets eventually get pricing right.

But the key to understanding this is the word "eventually."
Over the shorter term, markets frequently under- or overprice a stock before settling into the right approximation of value. This process typically occurs over broad lengths of time.
Unfortunately, that doesn't stop some rather suspect interpretations of what these short-term movements mean. I look at these tea readings as Rorschach tests, revealing more about the speaker than they do about the subject.

Case in point: The homebuilders.

It seemed that every time there was even the slightest uptick in the group, some bozo would declare that the bottom of the real estate cycle was in. Indeed, every dead-cat bounce or short squeeze was trotted out as proof positive that the housing problem was over. Only it wasn't, and the homebuilders cratered some 70% off their highs.

You don't need to be a technician to know this: The little squiggles on the chart mean a whole lot less than the big squiggles do.

P/E matters less than you think

P/E ratios alone tell you very little about a stock's future prospects.
If that sounds like blasphemy, please look at a few examples: Google (GOOG) , Apple (AAPL) and Mosaic (MOS) all sported high P/Es at the beginning of the year. Their stocks have done splendidly. On the other hand, back in January, retailers, financials and homebuilders all had reasonably cheap P/Es. (How'd they do?)
It helps if you think of P/Es not as a photo but as video. The direction matters more than the mere number:

Were P/Es likely to come down as sales ramped up? Or were P/Es modest because they were at the top of a profit cycle, and were likely to fall? The answer to these questions explains the difference between the winners and losers, and that leads us to:

Ignore deteriorating fundamentals at your peril

At various points in 2007, we saw or read recommendations to buy the unholy trinity: retailers, financials and homebuilders.

Each of these buy recommendations came despite the deteriorating economic fundamentals of each sector.
That turned out to be a recipe for big losses.

One would think this doesn't need to be said, and yet it does: When the fundamentals of a given market, sector or consumer group are decaying, profit gains are sure to slow.

Nothing is more costly than chasing yield

For fixed-income investors, what matters most is not the return on your money, it's the return of your money.
Reaching down the risk curve for a few bips of additional yield is one of the dumbest things an investor can ever do.

Know what you own

This very basic issue was mostly forgotten in recent years, and it was forgotten by pros and individuals.
Investment banks like Bear Stearns, Morgan Stanley (MS) and Merrill Lynch (MER), big banks like Citigroup (C) and Washington Mutual (WM) , and GSEs like Fannie Mae (FNM) and Freddie Mac (FRE) were scooping up assets apparently without doing their homework.

The complexity of these pools of mortgages almost guarantees that no one truly knows what's in them (see the next rule). If you don't know what you own, how can you properly manage risk?

Simple is better than complex

Here's why this blindingly obvious observation bears repeating:

Start with a few million mortgages of varying credit-worthiness and create a series of residential mortgage-backed securities (RMBS) from them. Then take the RMBS and stratify them. Then leverage them up into collateral debt obligations (CDOs). Once that bundling is complete, make complex bets on which layers might default, via credit default swaps (CDS). Gee, how could anything possibly go wrong with that?!
It turns out plenty can go wrong there. Remember, in the universe of financial engineering, simpler is better than complex.

Stick to your core competency

E*Trade (ETFC) is an online broker; what was it doing writing subprime mortgages?
Why was Bear Stearns running two hedge funds?
Isn't H&R Block a tax preparer? It was making mortgage loans why?
And exactly what was GM's expertise in underwriting mortgages? (The snarkier among you might be wondering exactly what business GM's expertise is in.)
Had these companies stuck to what they did best (or least bad), they wouldn't be in as much trouble today.

Fess up!

Whenever a company runs into trouble, they seem to take a page from the same PR playbook:

First, they say nothing. Second, they deny. Finally, they make a begrudging, pitifully small admission. Eventually, the full truth falls out, and the stock tanks with it.

Companies (and their shareholders) are much better served when the company admits its mistakes, apologizes and tries to make amends.
Promising to do better in the future never hurts either. Even when bad news hits a stock, a quick admission of error makes the pain less severe than it might have otherwise been.

Never forget risk management

This applies to everyone who is involved in anything financial: investors, companies, even the Fed.
Consider what could possibly go wrong, and have a plan in place in the event that unlikely possibility comes to pass.
If there is to be upside, then there must also be a corresponding and proportional downside.
For investors, that may be something as simple as using stop losses and being appropriately diversified.
For others, it means knowing what risk factors face their businesses: the price of oil, interest rates, a hurricane. You may not be able to control these things, but you can anticipate, prepare for, even hedge against all of them.

The trend is your friend

Despite the year's parade of horribles, this market cliché was proven true once again.

The Dow, S&P 500 and Nasdaq are all higher this year, as their long-term trends have been tested but remain intact.

The exception, the Russell 2000, broke its trend earlier this year. That made trend traders abandon the small-cap index, which has since fallen even further.
This confirms the corollary: "except for the bend at the end."

As long as the index trend lines stay intact, investors can sleep easy. But once those trendlines break, well, then you better apply some of the earlier lessons (see numbers 2, 3, 4, 6, 7 and 12!).

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Tuesday, January 15, 2008

Schumpeter: The Prophet of Bust and Boom - International Herald Tribune

Summary:

Sharon Reier on Schumpeter's creative destruction process; entrepreneurial spirit; Greenspan and Schumpeterian economics in 1999; transforming agents; monopolies (10/06/2000)

Notes:

Marx: labor is fundamental unit of economic value, proletariat as key agent of change; Schumpeter: entrepreneur is cornerstone of capitalism
Schumpeter: vital force behind capitalism is innovation and the entrepreneur willing to introduce it; introduction of innovations was responsible for both the progress and the instabilities of capitalism, i.e. creative distruction
creative destruction: "process in which new technologies, new kinds of products, new methods of production and new means of distribution make old ones obsolete, forcing existing companies to quickly adapt to a new environment or fail."
- Best for governments not to interfere with the "prosperity-creating potential of this radical kind of capitalism," even if it leads to job losses as established companies are brought down
Schumpeter departed from mainstream economic theory that viewed market and capitalism as stable
Entrepreneurial spirit: different way of looking at the world; will to create empire for one's self; dynamic force that stems from disposition of people; not necessarily intelligent or subtle people; want to attack the world in a certain way; cfr. adventurers
By advancing new products, technology or productive methods, entrepreneurs provide impulse for change
- Schumpeter: perennial gale of creative destruction (Capitalism, Socialism and Democracy, 1942)
Greenspan using Schumpeterian economics to explain remarkable non-inflationary expansion in US in past 8 years
- Greenspan, 1999: "The evident acceleration of the process of creative destruction, which has accompanied these expanding innovations and which has been reflected in the shifting of capital from failing technologies into those technologies at the cutting edge, has been remarkable."
- Greenspan, cont'd: "The innovations in information technology have begun to alter the manner in which we do business and create value, often in ways that were not readily foreseeable even five years ago. As this century comes to an end, the defining characteristic of the current wave of technology is the role of information."
- Greenspan, cont'd: "We do not know, nor do I suspect anyone can know, whether current developments are part of a once-or-twice-in-a-century phenomenon that will carry productivity trends nationally and globally to a new higher track, or whether we are merely obscuring some unusual variations."
Major advances occurring every 50 or 100 years: echoing Schumpeter's analysis of economic cycles;
- capitalism's restless history punctuated by long and short waves;
- long upswing stimulated when a new set of technologies and industries ("transforming agents") comes into existence
  - early 19th century: rise of textiles, iron, coal and steam engines
  - mid 19th century: steel production, construction of railroads
  - early 20th century: automobiles, electric power, related products
- transforming agent opens up opportunities while clearing out old areas of activity and ways of behaving
However, "booms contain the seeds of their own destruction"
- entrepreneur brings along something new, source of profit; others come into market and whittle profit away; as they copy, more investment; changes in investment; changes in profit; speculation cycle starts; lots of people speculating on the markets and market starts to boom; eventually, once everyone has the car, internet access, etc., there is only replacement demand, stop buying
Schumpeter: nothing wrong with monopolies, could me more effective purveyors of innovation than many start-ups
- get monopoly position because you're very good
- should judge monopolies by their innovation record, not by whether or not it has monopoly profits
- but as long as there are open markets, all monopolies are transient
Schumpeter was wrong about capitalism's endgame: thought it would become bureaucratic, squeezing out individual entrepreneur and making innovation routine subject to centralized management

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Thursday, November 15, 2007

Quote of the Day

"The trouble with the first time entrepreneur is that he doesn’t know what he doesn’t know. After a failure he does know what he doesn’t know and can beat the hell out of people who still have to learn." - Don Valentine, Sequoia

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Quote of the Day

"The world of technology thrives best when individuals are left alone to be different, creative, and disobedient." - Don Valentine, Sequoia

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Wednesday, October 3, 2007

Venture Capital's Hidden Calamity - BusinessWeek

Summary
Consensus in the industry that it's a bad time to be a VC. Not enough home-runs. Industry becoming more the font of outsourced R&D for big firms. Many investors worried that only a handful of firms will break even on the current crop of funds, much less produce stellar returns. Only IPOs are one-off companies, not hot new stuff. SarBox is making IPO less appealings. Acquisitions disappointing: time to acquisition is longest in 20 years and returns small. Yet a lot of money around. Billions of dollars in VCs' coffers fight to get in what few great companies there are. Driving up valuations, VCs paying more to get into the best deals. Terms between venture guys and their investors getting harsher. (Published: 03/10/07)
Notes:

bad time to be a VC

anyone who says different is either

raising a new fund, or

works at one of the few firms having a good year

numbers look great on the surface:

value of deals rose a solid 8% of Q2 of 2007
investors pumping $7.4b into emerging companies
money is funding some legitimately exciting frontiers

web2.0: $500m in H1
cleantech: $1.1b in H1

IPOs up for the year

Q2: venture-backed companies tapped the public markets for $2.73b

most raised in a 3-month period since 2000

Q4: 46 companies looking to file

but: closer look at numbers reveals disturbing trend

IPOs

mainly one-off companies that were founded years ago and have slogged away at building solid businesses for a half-decade or more

no big overall tech movement that's getting Wall Street revved up

feeling mutual among entrepreneurs

Sarbanes Oxley and other regulations have made the prospect of going public far less appealing

picture worse for acquisitions

Q3: $10b, but spread among 90 deals
typically companies that have been plodding for 6+ years, chewing through $30m in VC cash, to eventually get bought for $50m or so

median length of time it took companies to get bought was longest since Dow Jones VentureOne started measuring 20y ago

meanwhile, valuations keep rising

as billions of dollars in VCs' coffers fight to get in what few great companies there are

venture firms not destitute

have plenty of "base hits"
but: "home runs" increasingly elusive
Venture capital is a home-run business, where the top 10% firms make up nearly 80% of the returns.

many investors worried that only a handful of firms will break even on the current crop of funds, much less produce stellar returns
VC veteran's wondering whether they should get out/build a startup

unless something changes, VC is in for upheaval

industry may become more the font of outsourced R&D for big firms
less breeding ground for the next great tech powerhouse
returns will be lackluster for the majority of firms left out of the best deals

current calamity has been long time in the making

since NASDAQ bubble, firms learned the hard way that you could no longer take companies from idea to public in 18 months

instead, "it's a business of building companies, it's a business about people, gut calls, and the art of building a portfolio one deal at a time"

paradox:

venture industry has been downsizing, but those investing in the venture industry as a whole only wanted to invest in venture firms more

i.e. world's largest pension funds and institutions

money wanted to get into a shrinking business

is giving marginal firms another shot, keeping shakeout at bay

web 2.0

only one company, YouTube, had a $1b plus outcome when purchased by google
only handful have sold in the hundreds of millions
because the costs of starting these businesses are so low, venture investors own smaller stakes than they did in the last Web bubble

clean-tech

has seen a few exits

two IPOs in 2007 so far, 3 in registration
but: deals have been small

most of the clean-tech market is still experimental, in both technology and market opportunity

valuations are on the rise

venture investors paying more to get into the best deals

valuations are an important barometer of who holds more power at any given point in the Silicon Valley economic cycle

the higher a valuation, the fewer shares a VC's dollar buys, and the more leverage entrepreneurs have

high valuation not all bad news for the venture set

e.g. step-ups in valuations between rounds mean that on paper early stage investors are showing gains

just on paper

valuations typically driven up by the prospect of an IPO or big acquisition

now they're mostly being driven up by the piles of money looking for the next hot deal
venture investors getting all the drawbacks of a hot market

competition to get in on the deals and high prices
without the benefits (blockbuster IPOs and acquisitions)

NVCA: almost half of venture investors surveyed predicted a decrease in the number of VC firms even as returns improve overall

terms between venture guys and their investors getting harsher

limited partners increasingly demand lower management fees and so-called "key man" provisions

"key man" provisions give investors an out if certain rock-star partners leave a firm

bright side

with so much cash floating around the Valley, entrepreneurs have never had it so good
lot of dumb ideas are getting funded, but nearly any great idea has a good chance of getting funded too

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