Sunday, January 25, 2009
Most of the time I illustrate my blog posts with the simple help of Google Images.
By chance today, I came upon the work of a professional photographer named Yeltzin.
Here is his take on the Greek Ionian Island of Zakynthos.
You might want to check out Mr. Yeltzin's work.
And... you might want to check out Zakynthos - I know I do!
Oh... and this photo is for Hilary and Rob:
As I have posted earlier, Morgan Stanley have largely silenced their contrarian former chief economist by shipping him off to Asia (though that is obviously also a good place for this man to be). Since being exiled by his employer, his work has become very hard to find.
Stephen Roach has recently published an essay comparing the situation of the US in 2009 to Japan in the 1990s. Copies of the essay are currently circulating around the net, as Morgan Stanley no longer provides a forum for Mr. Roach's work.
In Japan, as it is well known, the implosion of an asset bubble led to the creation of a "lost decade" from which Japan has still to recover.
Many have argued that the US will avert Japan's fate due to the readiness of the Federal Reserve to pump out stimulus after stimulus. According to Mr. Roach, here is the problem... in the Japanese asset bubble, only 17% of GDP was at stake, and primarily the corporate sector was affected.
In the US, the most recent of a succession of ever-larger financial bubbles (in reality, government-sanctioned Ponzi schemes) has finally impinged on the US consumer. In the US, consumer spending constitutes 70% of the economy, and US consumers will have to retrench for years before returning to the stage as the world's "most important consumers."
That is, Mr. Roach asserts that the United States' "lost decade" will be more painful than that endured by the Japanese - not less.
Mr. Roach concludes: "Like the Japan of the 1990s, the US faces stiff headwinds. And until the rest of the world uncovers a new consumer - which is not likely during the next few years - a protracted global slowdown is distinctly possible."
Read all about it, here, on this mirror site: US not certain of avoiding Japan-style 'lost decade,'
or got to this link at FT.com.
(24 January 2009)
By the way - my own take is a bit different than that of Mr. Roach.
While I agree that the debt-engorged US consumer is not about to be replicated in any other corner of the globe, I do not think that even the collapse of the "Ponzi economy" of the US, in a "Greenspan depression," can trump the entry of Asia, the Middle East, and other sectors of the former second and third worlds into the global marketplace.
My position is perhaps paradoxical on a prima facie basis, as, similarly to Mr. Roach, I believe the present US-spawned economic crisis is considerably more serious than the Japanese debacle of the 1990s. US financial institutions have truly hedged the greater part of their bets against ephemeral assets which in some cases are of literally no value. The combined international equity markets have surrendered greater than 50% of their value over the past year... and global economic conditions are sufficiently adverse to warrant this collapse in asset prices.
Yet... 1990s Japan saw nothing akin to the present phenomenon - which I would characterize as the awakening of the second and third worlds to international markets.... Nor did the 1930s depression era witness such a phenomenon. For those of us who believe in the power of the marketplace not just to exchange wealth but to create wealth - such an event as is presently occurring has never before been seen in the still brief history of our species upon this planet.
So yes - I do foresee a "Japan-style" lost decade for the United States. But I do not foresee a 1930s style depression for the remainder of the world, which is nowhere nearly so leveraged or unbalanced as is the US.
To be clear - the present economic crisis is more or less a "made in the USA" phenomenon, and that is where it will do its greatest damage.
So, while the US may undergo a comparative loss of advantage in the global marketplace over the next decade which may in fact be quite dramatic - Obama optimism or no - I do not foresee the remainder of the world following America down this particular path.
Rather, I anticipate an emerging "stagflationary" era for the balance of the world, characterized by rising inflation against a background of "first world" financial retrenchment attributable to continued but increasingly dispersed global growth in demand for raw materials, for services, and for manufactured and technological products.
This growth in demand in my view will be a consequence of the expansion in size of the marketplace itself - with a resultant re-slicing of the pie of international wealth in favour of the emerging, the labouring, the (low-cost) manufacturing and the commodity-producing nations, specifically at the expense of the United States.
Click here for a (pre-disappearance) biography of Mr. Roach.
And click here for Peter Schiff's recent Wall Street Journal critique of the present dependency of the United States on unsustainable deficits and debt (this includes the Obama administration and its current budgetary plans, as well as the previous Bush administration and its unbalanced economic policies).
Oh... this is an aside... look for robotics to become a critical component of the low-cost production of finished goods, and thus an increasingly integral component of citizen life, particularly in the Western nations....
Thursday, January 22, 2009
When in doubt - question your assumptions.
Canada is presently facing an extensive debate about how to manage the looming bankruptcy of the North American Big Three Auto Makers.
The unquestioned assumption?
We're going to fix this by arranging for the government to throw taxpayer money at the problem.
Thus the debate is not really about whether to bail out the sector, but about how to bail it out.
In my view, this is exactly the wrong kind of thinking.
What is the problem?
In a collusive strategy of mutual self-reward, both executives and unions have been engaging in self-indulgent behaviour for decades.
Let's start with the executive side.
The unquestioned assumption is that executives are worthy of receiving high salaries, exorbitant benefit and stock option arrangements, and luxurious perks - let's not even start talking about the Lear Jets.
How about the unions?
In Canada, auto workers' wages are 50% higher than the average for assembly line workers in the industrial sector ($34 versus $22 per hour). Add in the benefits, and auto workers surge still further ahead. The rationalization is that the Canadian Auto Workers are "pushing the envelope" for Canada's other industrial workers.
The logic on both the executive and the union sides is entirely self-serving.
How about shareholders?
Exploited investors have paid for these failed strategies with at least a decade of declining stock performance. The markets discerned years ago that the North American auto sector was not a source of reliable profit increase - for exactly the reasons I have just described.
When the North American economy surged due to shared government and central bank policies of sustaining rather than short-circuiting a succession of debt-based financial bubbles, both the executives and the unions in the auto sector were able to exploit this illusory "blue sky" financial environment to "get away" with their bad behaviour. Investors - who have consistently been the first to be punished, particularly over the past decade - did not do well, but the companies stayed in business.
Now that the bubbles - save for the current taxpayer and central bank-funded "bailout bubble" - have popped, self-indulgence is no longer a viable business strategy.
Question your assumptions.
Hey, isn't competition in the automotive sector a good thing?
What is my proposal?
Leave the auto sector alone to sort out its own problems. Based on fundamental free market principles, let the executives and the unions decide together how much or how little they are willing to cut back - to live lives a little bit more like the rest of us. If they retrench sufficiently, maybe they can stay in business - and, if it has truly gone too far for too long, perhaps they can't. That is how free markets work.
If you have seen Francis Coppola's film, Tucker, then you know that in their heyday, the big three were not kind to competitors who wanted to build different kinds of cars.
What does a free market do? It engenders competition. If the big three can't compete, then some of their existing competitors very likely can - or alternatively, it is likely that in the event of actual dissolution of the big three, new automakers will arise in an uncluttered environment which permits renewed competition - perhaps out of such sectors as green energy, lightweight materials, aircraft technology, light vehicle manufacturing, etc.
Certainly the big three have failed in the mission of building "different kinds of cars." If the present market truly demands a different car - smaller, greener, lighter, more economical, alternative fuel-based, whatever - then a free market will generate solutions to fill the void that the big three have been unable to address.
Permit me to add another note, addressed to Canadians.
I do not know how well Canada's manufacturing sector will fare in the future. I do know that throwing government money at the sector will produce no lasting solutions - in fact, it is far more likely to perpetuate the existing culture of "self-indulgence all-around."
But Canada is a commodity-producing country. We live in a world where essentially all of Asia, much of the Middle East, enlarging sectors in Latin America, and even isolated parts of Africa, have joined the global consumer economy. It takes little prescience to appreciate that this reality will create an unprecedented international bull market in commodities, no matter how tough our present economic environment.
As it happens, Canada is the world's leader in the field of nurturing small capitalization mining ventures. Right now, while Canadians dither about the fate of our manufacturing sector, and to a lesser degree, our forestry sector, many small cap miners with excellent potential are facing dissolution or bankruptcy, while our larger mining companies are shutting mines, suspending exploration activities and shedding jobs.
Our eyes are fixed in the wrong place.
The Canadian economy has always surged when commodities are in demand, and contracted when they are not. The Canadian economic cycle is no mystery to anyone who has studied it.
The 21st century is therefore Canada's century.
Canada's mining and mineral sector is set to soar in response to the greatest commodity boom in human history (fuelled by 7 billion global citizens). And we have so far responded by dithering about how to save jobs in our sunset industries.
I assert modestly that Canada's commodity sector has the capacity to create ten jobs for every one that will be lost in manufacturing or in forestry. But Canadians do not see this because we are looking backwards, not forwards.
If subsidies are warranted, it is certainly not in the over-indulged automotive sector, but in our neglected crown jewel - the mining and mineral industry.
So I propose - also - that if we really just have to spend some of our taxpayers' hard-earned money, lets invest it in development loans for small mining companies and in training Canadians for employment in the soon-to-be booming mineral and mining sector.
Let's take off our blinders, and think in terms of real opportunity instead of in terms of rescue, salvage and "bail-outs."
Monday, January 19, 2009
19 January 2009
One of the ways that the world has changed is that due to the internet, we can engage in discussions with friends around the world about topics of our choice.
Fellow New College of Florida alumnus Gregory Bullock and I became involved in a discussion of Joseph Conrad's Nostromo over the past week. The novel is the story of the development of a silver mine in a corrupt (and fictional) Latin American country, and how human nature influences and distorts that process.
I had not read the book, and so I asked Gregory to tell me more about it. I found Gregory's insights fascinating and enlightening, to the point that it is now on my reading list!
The exchange began when I responded to the following note on Gregory's profile page on Facebook:
- Gregory is reading Nostromo by Joseph Conrad and pondering Conrad's views on idealism and scepticism. 9:27am - Comment
The balance of our discussion follows below....
So… it looks like Steinbeck could be next on our list!