Archive for February, 2009

Feb 25 2009

Secondary Effects

Published by under General,retro

It is no secret that newspapers are in serious decline and a number of them have filed for bankruptcy protection. I haven’t subscribed to a paper in many years and hence am part of their problem. Like many others I get all the news I want via the internet, radio (most radio is via podcasts) and talking to other people. I still read one magazine printed on paper that arrives via the U.S. Mail which includes news related material.
I don’t miss the rather dirty and voluminous newspapers except when I want to cover a floor to protect it from paint or the trunk of my car to protect it from very dirty objects (like loads of garden mulch or compost). What will fill this niche if newspapers disappear? Purchased plastic sheets? That doesn’t sound like a step forward.
Speaking of plastic: In San Francisco, grocery stores can no longer provide plastic bags. This opens up the market for people to sell plastic bags as there still is a needed to line garbage cans.
Somewhere, someone must be saving old plastic grocery bags or newspaper mastheads in hopes of starting a museum for each. Maybe in what used to be a gas station along some highway.

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Feb 11 2009

When Markets Collide

Published by under Books

by Mohamed A. El-Erian

Subtitled: “Investment Strategies for the Age of Global Economic Change”

This title must have been the publisher’s attempt at grabbing attention on book racks and news stands. The “markets” that are colliding are our current market and a not yet well defined future market. The collision metaphor seems to be an overlay by the author, and a stretch, on an assessment of the causes of current turmoil and a forecast about major trends in the economic and financial sectors. Keep in mind that this book was written in 2007 and very early 2008 so it does not reflect all the recent financial and economic upsets, but that gives it a little more credibility.
The book talks about macro economic and the structure of financial markets and associated institutions, but it is somewhat chatty and relatively easy to read. Discussions are based on a mix of disciplines that bear on financial processes and macro economic policy. In a lot of ways, I find the authors view of the world fits, but only the future will tell.
In a nutshell, the book attempts to justify a view of the world economy and derive prescriptions for personal investment and institutional changes consistent with that view. A quick outline of the view is:

  • The engine of economic growth is moving from US toward emerging countries in Asia and the Middle East.
  • Emerging markets will inexorably go from export oriented to more consumption oriented.
  • US will diminish its high level of consumption financed by debt.
  • Global inflation will rise driven by commodity demand and an ongoing reduction in the deflationary pressure derived from low wages in emerging market countries (e.g. Chinese wages will rise).
  • The Sovereign Wealth Fund’s in emerging market countries in Asia and the Middle East which are running a surplus will impact developed economies and allocation of capital worldwide (i.e. they will be big players).
  • The global financial system will be upset by technical and systematic problems as systems evolve.

The book covers a lot of ground and tries to provide specific advice for investors and for policy makers. China and India loom large in the picture and seem a bit over stated given more recent events. Their economies seem now to be more coupled than de-coupled from the US and other developed markets. Similarly, the commodities boom has turned to bust, for now, but commodities may be strong again once the current problems get sorted out. So some content rings less true than it did a year ago, but the book attempts to identify long term pressures and drives; not month to month fluctuations. Perhaps ominously, an extended period of serios starts/stops, calms/upsets are part of the story. Certainly upset now!

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