Sunday, January 25, 2009

Zakynthos: Yeltzin's View

24 January 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:


US not certain of avoiding Japan-style 'lost decade'

23 & 25 January 2009

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

My View
(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

A Self-Repair Strategy for the Auto Sector

22 January 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

Nostromo: Wall-to-Wall with Gregory Bullock

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....

Laurence Hunt wrote
at 12:38am on January 11th, 2009

OK, So what is Conrad's take on idealism and skepticism???

Gregory Bullock (Suffolk County, NY) wrote
at 6:59am on January 12th, 2009

It's been compared to the Icarus myth. Icarus is lost in the maze of empirical experience. He adopts a set of ideals so he can fly. He moves ahead and escapes the maze but as he approaches the Sun "reality" the wings melt and he falls back to earth "scepticism". The political ideas are interesting also: People are motivated by "dream ideals". Material progress, nationlism, religion. When reality causes these ideals to fail – people are in turmoil ‘til another dream ideal takes its place a gives them a direction to move ahead.

Laurence Hunt wrote
at 1:19pm on January 12th, 2009

Interestingly, Conrad shares this view at least partially in common with Dietrich Bonhoeffer (one of several members of Hitler assassination plots, on which the current film Valkyrie is based), who maintained that "God hates visionary dreaming." However, Conrad seems to be suggesting that without the visionary dream, we live an oppressed existence? Have I got it? (My exposure to Heart of Darkness is so far only through Coppola, and I have not read Nostromo.) By the way, are you suggesting that Nostromo is a book that should be read?

Gregory Bullock (Suffolk County, NY) wrote
at 1:58pm on January 12th, 2009

Yes - you are right on with that Bonhoeffer quote. However Conrad speaks more from the viewpoint of the amused skeptic aware of a paradox. Only the deluded ever get anything done because they are deceived. This is a great book. Many consider it his masterwork. It was also made into a public television miniseries. If anybody knows anything about going into the wilderness it would be you! Many contemporary Latin American thinkers find it valuable. Interestingly Conrad never experienced any of this kind of life in depth. He only observed "offshore" as a merchant sailor.

Laurence Hunt wrote
at 2:22pm on January 12th, 2009

Reading between the lines, I'd speculate that Conrad is largely describing himself. Here he is, sitting offshore, but immersed in rich and complex fantasies about what is taking place beyond the docks. However, he'd need fuel from some source to portray his "visionary dreams" so convincingly. You've gotta guess he's observing every move of his shipmates, reading cause-and-effect into the behaviour of everyone he encounters. I'm not really implying that this is voyeurism, just that he is an observer more than a doer, as in the classic case was Proust. Maybe the really active guys write poetry, because they can't sit still to write the novels – I'm thinking of such as Dylan Thomas, Canada's Earle Birney (oft' quoted by my wife), etc. Or you have the perhaps bipolar creator such as Tolstoy. In any case, it's interesting to speculate as to how Conrad could have produced something so rich from the railings of a merchant vessel. I must now search around for this book!

Gregory Bullock (Suffolk County, NY) wrote
at 5:57am on January 13th, 2009

Some commentaries that I've read have traced a lot of the social and political ideas to travel books about the area that were current at the time. This reminds me of Melville. He chased whales as a young man but Moby Dick was written from the safety of New England. Conrad was a successful merchant mariner but retired to write sea novels.

Laurence Hunt wrote
at 11:46am on January 13th, 2009

I know travel books had become very popular at that time. Fine British ladies took off to West Africa and slogged through swamp and muck at great peril, not always surviving for long, but delivering many well-attended lectures (back home) before death. You've certainly piqued my interest in Nostromo. Re: Melville, the CBC here in Canada did a great "Ideas" program on him (probably available at the CBC Ideas website). Was he the "archetypal" American writer? I don't know. But he included pages on Egyptian techniques of Mummification in Moby Dick, I guess just because the subject had interested him. Melville was broadly read, and in his case, I'm sure the whale chasing aided him. Few patrons of the coffee chain attribute the name of their product to Melville. I need more leisure time to read. Having caught up with 43 reports last holiday, I must now relax and read on the next one! Moby Dick and Nostromo would be two good picks for holiday reading. Your opinion on Nostromo vs Heart of D?

Gregory Bullock (Suffolk County, NY) wrote
at 1:15pm on January 13th, 2009

Nostromo is a longer more measured and complex work. It has more of an epic quality and deals more with political issues and the way they relate to the individual self. Heart of Darkness is more of a blazing intense short work. I googled Nostromo and was amused to see the comments of an international aid worker complaining that he was encountering the same situations and problems today. Even mentions expat colonies of Europeans that were controlling trade and shipping.

Laurence Hunt wrote
at 2:27pm on January 13th, 2009

You're piquing my interest for sure. You've never taught English Lit have you? I can see how Heart of Darkness might have garnered the greater share of attention, being blazing and intense. Isn't that virtually all that current markets demand? Given the choice, Nostromo would now be my pick.

Gregory Bullock (Suffolk County, NY) wrote
at 7:12am yesterday

Check this post out:;col1

Laurence Hunt wrote
at 1:44pm

Re Conrad. I read Kaplan's article, and am familiar with his earlier work, due once again to his being featured on CBC Radio (my main channel to the outside world). I absolutely agree with every point – literature trumps history and poli-sci – because narrative trumps ratiocination, and intuition trumps logic. What an insightful piece on Kaplan's part. And I know too that Kaplan is in many ways a jaded pessimist – things fall apart, the centre cannot hold, yet people are resourceful and figure out ways to survive in absurd circumstances, and have we not now recapitulated Dostoevsky, Camus, Sartre, et al? Anyway, I'm sold on Nostromo, and have ordered the Folio edition, as I thought it would be worth it. Threw a couple of Conrad specials into the order also. Conrad was prolific, and by the capsule summaries, a master of popular as well as literate story-telling!

Laurence Hunt wrote
at 1:38pm

Bill Conerly - NC Alum - does a nice economics blog, and I personally rant about gold investing, as I think the powers that be wrecked the economy with indulgent central bank policies and military spending.

Gregory Bullock (Suffolk County, NY) wrote
at 1:53pm

I read one of Bill’s blogs and thought it was good. Gold symbolizes authority in Nostromo and silver represents ideals. Of course the whole book spins around the hijacking of silver.

Laurence Hunt wrote
at 2:04pm

Bill is an independent thinker, though I have challenged him to question his assumptions in some cases. (Perhaps I'm waiting for him to challenge me back.) Interesting that in Conrad's time the fierce struggles were over things that were real. Now it's all about SIVs, MBSs, CDOs and other leveraged financial fantasies! One (jaded) prediction for the future - we shall be back to fighting over things that are real before all is done with! In the investment world, gold leads silver, then silver plays catch-up and overshoots to the high side. It has been a virtual historical certainty, to which few investors pay attention these days. It seems that intuitively, Conrad had accurately grasped this centuries if not millennia-long relationship, despite being by no means a financial analyst! I just get more impressed with your comments on Conrad. And he mastered the literature of a language he did not acquire until his 20s. Wow!

Laurence Hunt wrote
at 2:05pm

So have you considered teaching an evening literature course?


Gregory Bullock (Suffolk County, NY) wrote
at 6:27am on January 16th, 2009

I love this stuff but I'm not the literary genius you think I am. A lot of this material is in commentaries online. Maybe when I retire at 80 years old I'll have time!

Gregory Bullock (Suffolk County, NY) wrote
at 10:54am

Got a great x-mas gift from my brother- a collectible copy of Steinbeck's short novels. Tortilla Flat is my home reading. Nostromo my work break reading.

So… it looks like Steinbeck could be next on our list!