There were many discussions on which letter of the alphabet the recession would end up with:
W: Double dip, two consecutive business cycles
V: Single dip
L: Economy going down and staying there for long.
I think, there is a need for a new letter to show that economy is balancing at lower level of income (macro wise). "F" may be. We can think it in terms of Cartesian coordinates: x the horizontal axis, y the vertical axis and the top horizontal line (x1) of letter F as the level of income before recession and the below horizontal line (x2) as the level after the recession.
Thursday, 4 February 2010
Friday, 29 January 2010
DAVOS WORLD ECONOMIC FORUM
The forum is taking place since 27th of January and will finish on the 31st.
It is a good mix of 900 CEOs, government representatives, media, academic professionals, NGOs.
This year there are many different topics on the agenda one of which is "Directing Avatar" -- Conversation with James Cameron.
Interesting to see it among the Economic Forum topics.
Many others with social focus are population growth, social networks, life on other planets, rethinking philanthropy, enrichment through music, economics of happiness.
It is a good mix of 900 CEOs, government representatives, media, academic professionals, NGOs.
This year there are many different topics on the agenda one of which is "Directing Avatar" -- Conversation with James Cameron.
Interesting to see it among the Economic Forum topics.
Many others with social focus are population growth, social networks, life on other planets, rethinking philanthropy, enrichment through music, economics of happiness.
JAPANESE MIRACLES
Japan has been one of the miracle countries. On a land of nearly 80% of mountains unsuitable for agriculture they still managed to be the ninth largest producer of rice in the world, the main ingredient of their famous sushi. As an island being exposed to tsunamis, earthquakes they managed to build the houses, which can survive the earthquake at magnitude of 8.
Rank of number two in the league of global GDP, forth largest exporter and sixth largest importer plus enormous growth between 1960 and 1980 made the country a role model for the rest of the world in their management concepts such as kaizen (continuous improvement), just-in-time (production upon demand).
After their lost decade of 1990s, and a global world shaken by credit crunch, they are challenged again with an economy of deflation keeping the consumption low, weak earnings keeping investment low, government debt already with over 180% of GDP.
However, Japan managed to bring the exports, the only variable left to play with; in their favour in December 2009 at a level of ¥5.41trillion ($59billion). The country's exports are growing again after 15 months of consecutive fall. Yes, they are very below their peaks considering the fact that it was ¥12.7trillion ($113billion) in November 2007. What matters though is to gain the momentum of growth again.
Can Japan be heading to a new miracle of achieving good growth of GDP despite the challenges of depressed consumption, investment items and a government spending, which is restricted with a cumulatively high debt level and credit rating constraints?
The answer can be “yes”.
Rank of number two in the league of global GDP, forth largest exporter and sixth largest importer plus enormous growth between 1960 and 1980 made the country a role model for the rest of the world in their management concepts such as kaizen (continuous improvement), just-in-time (production upon demand).
After their lost decade of 1990s, and a global world shaken by credit crunch, they are challenged again with an economy of deflation keeping the consumption low, weak earnings keeping investment low, government debt already with over 180% of GDP.
However, Japan managed to bring the exports, the only variable left to play with; in their favour in December 2009 at a level of ¥5.41trillion ($59billion). The country's exports are growing again after 15 months of consecutive fall. Yes, they are very below their peaks considering the fact that it was ¥12.7trillion ($113billion) in November 2007. What matters though is to gain the momentum of growth again.
Can Japan be heading to a new miracle of achieving good growth of GDP despite the challenges of depressed consumption, investment items and a government spending, which is restricted with a cumulatively high debt level and credit rating constraints?
The answer can be “yes”.
Friday, 22 January 2010
JAPANESE AIRLINES
One thing, which can only be seen as “the whole glass is empty” is bankruptcy. It can be quite nostalgic depending on how old the company is. Last year in UK the list of the big names included 100 years old Woolworths, 250 years old Wedgewood. The former being the choice of tight budget customers whereas the latter serving luxury looking customers. Both existed over many generations.
As we are going through 2010’s first month, a new huge one came up from Japanese Airlines, which is Asia’s biggest airline. This is the first bankruptcy of the industry at this scale during this recession. Japanese government’s announcement of protection of creditors provided a relief. And it is a re-reminder of weak earnings considering the liquid nature of the business model.
The reason/s why this is so important will be the subject of my new blog post.
As we are going through 2010’s first month, a new huge one came up from Japanese Airlines, which is Asia’s biggest airline. This is the first bankruptcy of the industry at this scale during this recession. Japanese government’s announcement of protection of creditors provided a relief. And it is a re-reminder of weak earnings considering the liquid nature of the business model.
The reason/s why this is so important will be the subject of my new blog post.
Saturday, 9 January 2010
THE FINANCIAL CRISIS INQUIRY COMMISSION
We are seeing United States initiative for investigations regarding the causes of the recent crisis. We have been discussing, reading about these since 2007 but the commission has put them in a more organized structure under 22 headings ranged from credit rating agencies, global imbalances, corporate governance, derivatives to securitisation.
On the positive side:
1. US determination to lead the exit is persistent
2. A rich mix will be available in hearings from head of top investment banks to regulators and independent experts.
On the question mark side:
Will it cause high public expectations or indifference?
On the positive side:
1. US determination to lead the exit is persistent
2. A rich mix will be available in hearings from head of top investment banks to regulators and independent experts.
On the question mark side:
Will it cause high public expectations or indifference?
Sunday, 13 December 2009
OIL PRICES – II
1990s was a low price period.
But prices started to increase again in 21st century pushed by higher demand.
Goldman Sachs as the biggest trader of energy derivatives had made a forecast in March 2005 that prices could jump as high as $105 per barrel from then present levels of $50.
In July 2008 we saw the price over $147.
Now it is below $70 again.
Where will it go from here?
The answer lies in the competition between substitution effect of alternative energies versus demand effect of existing energies. As there is only one world, alternative energies is what logic dictates.
But prices started to increase again in 21st century pushed by higher demand.
Goldman Sachs as the biggest trader of energy derivatives had made a forecast in March 2005 that prices could jump as high as $105 per barrel from then present levels of $50.
In July 2008 we saw the price over $147.
Now it is below $70 again.
Where will it go from here?
The answer lies in the competition between substitution effect of alternative energies versus demand effect of existing energies. As there is only one world, alternative energies is what logic dictates.
OIL PRICES - I
The price of oil since it was first discovered in 1861 has always been one of the most volatile and carefully watched variables of the economy.
When OPEC raised the price by 70% in October 1973 and a further 130% in December 1973 and overall ten-fold between 1973 and 1980, it turned into a volatility creating source.
In 1980s, demand for oil and price declined due to efforts of oil importing countries to find alternative energies such as coal, natural gas and nuclear power and alternative sources such as Norway.
Then came production quotas of OPEC.
When OPEC raised the price by 70% in October 1973 and a further 130% in December 1973 and overall ten-fold between 1973 and 1980, it turned into a volatility creating source.
In 1980s, demand for oil and price declined due to efforts of oil importing countries to find alternative energies such as coal, natural gas and nuclear power and alternative sources such as Norway.
Then came production quotas of OPEC.
Saturday, 12 December 2009
THREE MAJOR WESTERN CURRENCIES - II
Sterling devalued both against the euro and the US dollars in 2008.
During the year, US inflation was 1% on average and UK inflation was 3.5% (Note). The inflation discrepancy is 3.4% whereas the change in exchange rate is 25%.
For the same period, average Euro zone inflation was 3.3% against the UK inflation of around 3.5%. The inflation discrepancy in this case is almost negligible at 0.2% whereas the change in the exchange rate is higher at 36%.
Although the theory is right in the sense that UK has higher inflation rate and therefore devaluation of its currency, it is not sufficient in explaining the significant differences in this case.
Note: Consumer price index is used for inflation.
During the year, US inflation was 1% on average and UK inflation was 3.5% (Note). The inflation discrepancy is 3.4% whereas the change in exchange rate is 25%.
For the same period, average Euro zone inflation was 3.3% against the UK inflation of around 3.5%. The inflation discrepancy in this case is almost negligible at 0.2% whereas the change in the exchange rate is higher at 36%.
Although the theory is right in the sense that UK has higher inflation rate and therefore devaluation of its currency, it is not sufficient in explaining the significant differences in this case.
Note: Consumer price index is used for inflation.
THREE MAJOR WESTERN CURRENCIES - I
Last year this time, sterling-euro exchange rate (€/£) was almost 1. 1£ was equivalent of 1€. This was from a level of 1.36 in January 2008, 1.44 in November 2007. (Now it is 1.11)
Similarly; dollar-sterling exchange rate ($/£) this time last year was 1.48, 1.98 in January 2008, 2.08 in November 2007. (Now it is 1.62)
One theory that would explain the movement is the inflation differences between the countries/regions. For $/£ between January 2008 and last time this year, there should be higher inflation in UK economy compared to the US economy according to the theory.
EURO MOVE
In a team work exercise I have been about seven years ago; two small groups were asked to build a tower from paper and staples.
Both groups were given “a” amount of papers, plenty of staples, “b” amount of capital. If ran out of paper you could buy more by “c” amount of money. For breakeven the tower should have been at least “d” foot tall and any foot above the breakeven would add to existing capital. The team, which would add more with consideration of scarce resource of papers would be the winner.
In my team (T1); we decided to make cylinder shaped blocks by rolling the papers - attached with staples- to make a cube of 3*3 (each cylinder making one of 9), and put some papers between each layer of 3*3. To make the foundation stronger; use three papers for each roll of the first two layers and roll them as landscape shaped. Then from third layer onwards use two papers for each roll and roll them as portrait shaped.
T1's building was getting higher and higher, as if competing to Eiffel Tower. When finished, I said, “Be careful with moving, the building may fall down” and two of the observers of the team as a joke acted like they were going to run. It didn’t fall and T1 had the highest capital.
The link to today: Just reading Financial Times of Saturday and once more seeing how suddenly global economy can shake with one walk, worse if run. Just look what happened to Euro. An economy making 3% of the zone’s GDP shook the whole Euro zone, and the value of the currency, causing 5% fall in the exchange rate against the US$ in 2010 so far. The market for Euro is moving strongly. And it may be the time to watch the Euro Zone Tower.
Similarly; dollar-sterling exchange rate ($/£) this time last year was 1.48, 1.98 in January 2008, 2.08 in November 2007. (Now it is 1.62)
One theory that would explain the movement is the inflation differences between the countries/regions. For $/£ between January 2008 and last time this year, there should be higher inflation in UK economy compared to the US economy according to the theory.
EURO MOVE
In a team work exercise I have been about seven years ago; two small groups were asked to build a tower from paper and staples.
Both groups were given “a” amount of papers, plenty of staples, “b” amount of capital. If ran out of paper you could buy more by “c” amount of money. For breakeven the tower should have been at least “d” foot tall and any foot above the breakeven would add to existing capital. The team, which would add more with consideration of scarce resource of papers would be the winner.
In my team (T1); we decided to make cylinder shaped blocks by rolling the papers - attached with staples- to make a cube of 3*3 (each cylinder making one of 9), and put some papers between each layer of 3*3. To make the foundation stronger; use three papers for each roll of the first two layers and roll them as landscape shaped. Then from third layer onwards use two papers for each roll and roll them as portrait shaped.
T1's building was getting higher and higher, as if competing to Eiffel Tower. When finished, I said, “Be careful with moving, the building may fall down” and two of the observers of the team as a joke acted like they were going to run. It didn’t fall and T1 had the highest capital.
The link to today: Just reading Financial Times of Saturday and once more seeing how suddenly global economy can shake with one walk, worse if run. Just look what happened to Euro. An economy making 3% of the zone’s GDP shook the whole Euro zone, and the value of the currency, causing 5% fall in the exchange rate against the US$ in 2010 so far. The market for Euro is moving strongly. And it may be the time to watch the Euro Zone Tower.
Friday, 11 December 2009
GROWTH MODELS: SUPPLY OR DEMAND DETERMINED
Now that the global world is growing again; one question that is coming to mind is: “Is it supply or demand determined?”
The answer is demand determined for the moment, meaning supply adjusts to demand. Economist Tinbergen’s adjustment between demand and supply is in place, which is government regulating demand and supply to achieve the target/s of growth. All the recent government stimulus by developed economies are in mind.
Once the economy recovers and governments withdraw their support from the economy, the answer should change to supply determined, meaning price and market mechanism without state intervention.
The answer is demand determined for the moment, meaning supply adjusts to demand. Economist Tinbergen’s adjustment between demand and supply is in place, which is government regulating demand and supply to achieve the target/s of growth. All the recent government stimulus by developed economies are in mind.
Once the economy recovers and governments withdraw their support from the economy, the answer should change to supply determined, meaning price and market mechanism without state intervention.
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