Archive for Globalisation
April 22, 2009 at 10:17 am · Filed under America, Globalisation, Australia
Governments around the world are grappling with the banking system. The entire inter-connected ball of string has been close to unravelling several times. It’s only been perserverance, luck and wads of money that have kept it together. In five years time we’ll be reading books entitled, “Financial Armageddon: How the World Economy Almost Collapsed”. That’s assuming worse things don’t happen. Then we’ll be reading survivalist newsletters bought by barter at the communal water well.
Yesterday Bank of America announced a US$4.2 billion profit - and sent the global stock markets crashing. It wasn’t the size of the result - a few billion dollars is still substantial, even though dwarfed by the trillions in bail-out funds. What panicked global financial markets was the composition of the profit. The vast majority was made in global markets through trading in interest and currency products, equities and commodities. This one-time gain even compensated for a new class of concern - bad credit card debts. Bank of America lost nearly US$2 billion in its credit card business. But that makes perfect sense - if your home has been foreclosed and your car repossessed, what’s to keep you making payments on the Visa? (Read the results in The Australian.)
Kevin Rudd, Prime Minister of Australia, published his vision of the clean-up of the global economy prior to last month’s G20 meeting. (That’s the one in London where the protester was killed died.) In it he refers repeatedly to “toxic assets” and the urgent need to flush these from the banking system. Toxic assets. That sounds awfully nasty. Years ago US Republicans were calling for a ban on “partial birth abortions” (also known as late term abortions).
Politicians have a nasty habit of coining terms that become immediately indefensible for the opposition. Who wouldn’t want to get rid of toxic assets? Who could support partial birth abortions?
Yet pick apart the vitriol and look at the root cause. Toxic assets are nothing more than loans made by bankers using bad lending criteria. Sometimes the bankers were prodded on by legislation demanding equal access to credit. Most times the bankers were driven by the fees and surcharges made when lending - and their insatiable drive for profits.
So toxic assets are mistakes by banks. And now politicians want carte-blanche to get in and buy them out. Without punishing the lenders. By having taxpayers pay for the mistakes of salaried bank managers.
At a recent rally in Washington DC one man waved a placard - “Honk if you’re paying my mortgage”. He didn’t look infected by his toxic asset. Instead every horn-blowing taxpayer was covered in toxic spill-out from the banks of America.
April 6, 2009 at 4:21 pm · Filed under Globalisation, Workplace
The French are…different. When there’s a dispute at work it’s quite acceptable to kidnap the boss. This month the head of Sony France was held captive - as was a colleague - as staff were upset over benefits. There’s a pleasant photo in “The Economist” of him sitting in his a meeting room in shirt and tie dining on take-away. Apparently he was treated humanely. They gave him Internet connection so he could update his Facebook status (”Je demande liberte!”).
Apres La Revolution: Sony employees locked Sony France execs Serge Foucher and Roland Bentz in a meeting room for a night because they were upset about getting fired and not getting the same relocation package as other workers. After the CEO agreed to continue negotiations, the workers set him free. (Source: CrunchGear)
It appears “le kidnapping” is a popular technique “en France”. It’s seen as a useful way to demonstrate disappointment in management’s actions. It’s hard to imagine, though, what the first “All Staff Meeting” is like after the boss is let free…?
April 2, 2009 at 12:41 pm · Filed under America, Globalisation
Like everyone else, we’ve started economising at home. We swapped to a lower-cost grocery store and sold the second car. We’ve always used left-overs - now there are fewer of them because we’re trying to cook only what we need. I’ve given up the cup of coffee bought downstairs every morning. And I swapped bus routes because the new one is $8.00 cheaper a week.
These are minor changes compared to the sacrifices made during The Great Depression. “The New York Times” includes a series of interviews with people who survived those tought times. I thought we were doing it tough until I read this great article:
“In the winter the chickens would come up under the house and sit in the basement, so if we wanted a chicken we’d raise a plank up and reach down and get the chicken.” Thomas Moon, 87
Read the article - I heartily recommend it.
March 26, 2009 at 3:14 pm · Filed under America, Globalisation, Australia
Politicians and business leaders are learning the importance of confidence. Obama describes the latest increases in housing starts and durable goods orders as “first shoots of green”. The New CEO of National Australia Bank says the global financial crisis could be bottoming out. Given the speed this crisis hit are we going to see a rapid return to consumerism-fueled prosperity? Or is it a dead cat bounce
Time for Wikipedia…
A dead cat bounce is a figurative term used by traders in the finance industry to describe a pattern wherein a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement, with the connotation that the rise was not an indication of improving circumstances in the fundamentals of the stock. It is derived from the notion that “even a dead cat will bounce if it falls from a great height”.
I trust the positive figures and am relieved to see stirrings of life. But I am also a realist and believe the crisis is far from over. The analogy I prefer is rather gruesome. I believe the python has swallowed the sheep, but it’s going to take a long, long time to work through the system.
March 24, 2009 at 11:38 am · Filed under Issues Management, Globalisation
Royal Bank of Scotland (RBS) has already received a significant injection of taxpayer-funds in the first tranche of emergency government lending late last year. This past weekend The Sunday Herald in Scotland writes that RBS is likely to receive much, much more (”RBS will get ‘billions’ in US bail-out of economy” by Ian Fraser). In Sydney RBS now has a prominent facade as the old ABN-AMRO Tower has been renamed the RBS Building-Tower-Shining Edifice.
So with a big building - and a bigger bail-out - I was keen to learn more when I saw RBS sponsoring a large display in Sydney’s Martin Place.
It was odd to see such a large - bubble - with the RBS logo so prominently displayed. I figured inside would be the legendary “toxic assets” that were the root cause of this global strife. I imagined bio-hazard engineers mopping up collateralised debt obligations and other nasties.
Instead RBS had a sports car that simulated a real “on track” experience. Brochures invite participants to:
Take the Challenge
Using a full size formula 1 show car with a driving simulator, you can test your instincts, nerve and reactions to set the fastest lap (source: The Sydney Challenge hand-out from RBS Martin Place display)
Now people have accused me of being cynical - and I agree. I have been a little biased in past posts. And at first I was horrified. Last year RBS accepted US$30 billion in government funding to continue operations (according to CNN). Today it is in line to receive tens of billions of dollars more. And in Australia, RBS has no retail banking operations. So the RBS Bubble is to keep the brand front of mind with corporations and other banks.
Then the penny dropped. Of course it makes perfect sense. RBS needs its customers to have all the reflexes of a professional race car driver if they are to survive the harrowing twists and turns in the coming months.
Who says the RBS display in the centre of Martin Place is a waste of tens of thousands of dollars?
March 24, 2009 at 8:47 am · Filed under America, Globalisation
Australian Prime Minister Kevin Rudd just landed in Washington, DC according to his Twitter posting 17 minutes ago. He’s on his way to meet Timothy Geithner, USA Treasury Secretary. It’s nice being able to Tweet a head of state to offer suggestions and advice. It almost makes you feel like your voice is being heard.
Just this morning Geithner has a bylined article on page 20 of the Business Section of “The Australian”. Seems the public relations offensive is in high gear.
Thankfully Wall Street and global markets liked Geithner’s presentation yesterday. The indices are up across the board and this looks like a convincing bear market rally. Maybe traders can claw back profits before the markets swoon again.
The Tweets and the bylined article showcase the importance placed on the effective presentation of the US Treasury Secretary. In his first public outing last month, Geithner failed to impress audiences with the details of his plans. Seemed the vaguaries and poorly considered plans left traders with cold feet. That set off a wave of panic selling and demands for Geithner to attend presentation skills training.
The combination of a stronger presentation and global media relations helps ensure global markets that the USA plan will work. There is a constant need for ongoing information. Pleased to see Geithner has lifted his game.
March 3, 2009 at 4:21 pm · Filed under America, Issues Management, Globalisation
Great communications achieves cut-through. You hear a phrase that you immediately understand and remember - and it epitomises the issue at hand.
Warren Buffett - the Oracle of Omaha - has a wonderful way with words. He’s been tested in his most recent shareholder letter when trying to explain the devastation wrought by the global financial collapse. Buffett says of 2008:
By year end investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.
No confusing that imagery. And yes, I feel much like a battered sparrow. Who doesn’t?
But what chills the blood is Buffett’s description of the government’s response:
In poker terms, the Treasury and the Fed have gone ‘all in’.
That doesn’t leave any room for maneourvre, does it?
In Australia the government has kept a few spare chips in reserve. The Reserve Bank of Australia chose not to lower interest rates at today’s meeting. That means there’s a little more flexibility for future changes. And Prime Minister Kevin Rudd has rushed AU$42 billion in aid out. But that’s billion with a “b” and not like the $1 trillion now being laid out in America. (Cut to Dr Evil in Austin Powers who exits a time machine and decides, in the 1990’s, to blackmail the world for $1 million. What comes after trillion? Gazillion?)
But back to bloodied birds. If you’re trying to make sense of the global financial collapse then look no further than Warren Buffett’s letter to shareholders. It’s plain, understandable and damn sobering.
February 25, 2009 at 8:49 am · Filed under America, China, Globalisation
Before World War Two, Germany endured a decade of economic losses spurred by the loss of World War One and the Great Depression. That period of time, called the Weimar Republic, was characterised by high inflation, currency devaluation, unemployment followed by a rise of nationalism and social unrest. With the vast scale of economic collapse globally I believe we’ll look back and call this time the “Pre-War Years”. Something’s gonna give - big time.
No country is being spared in the global economic collapse. Millions are jobless. In the USA in January 750,000 joined the ranks of unemployed. In the last six months 20 million people in China lost their jobs. That’s roughly the population of Australia. Government benefits are being rushed out to help but like all things government it will be too little, too late. Prices are tumbling and confidence has evaporated.
In time these collapses will ripple further. What happens when food production is impacted - or people can no longer afford dietary staples? One billion people lack access to clean drinking water. What happens when some of those live in Orange County or Barcelona or Beijing? When will civil discontent bubble into unrest?
In “Canadian Bacon” a fictional USA President finds his popularity waning. He believes war to be the best way to galvanise the public behind his presidency. Doesn’t take a large stretch of the imagination to foresee a Premier in China concerned about growing civil unrest - and using the same tactic to divert attention. And as always there are plenty of countries needing to be brought in line.
Other than the eternal bogeyman of China it is easy to see any country squabbling with its neighbours near and far over economic issues. Boost the tariff on pulp and watch Canadians get annoyed. Ban salted cod and the Portuguese are your enemies. Dispute a province and India is before the United Nations.
In times of economic unrest the quickest diversion for any politician is to externalise the argument. This isn’t the economy, stupid. This is war. Now it’s just a matter of when and where. Are the British betting agencies accepting wagers yet?
February 19, 2009 at 9:34 am · Filed under America, China, Globalisation, Australia
Australia owed its success in the first half of the 20th century to wool - it was ”a lucky country” built “off the sheep’s back”. In the 1990’s the economy powered through a decade without recession due to increased demand for minerals. Raw exports from Australia fed the growth in Asia and particularly China. In the same period China built vast reserves due to growth in trade. Australia was one of a very few countries with a positive trade balance with China. The USA faced a record imbalance as it relied more and more on China’s low cost imports.
Today China still has vast wealth reserves. Couple that with a desire to secure long-term resources and the country is sitting pretty.
Australia’s Treasurer Wayne Swan faces difficult decisions as China’s state-owned minerals company seeks to buy into Rio Tinto, one of Australia’s largest mineral companies. (Further complicating matters Rio Tinto knocked back an offer from BHP Billiton and now may accept a lower offer due to financial stress. Their gamesmanship didn’t work. Checkmate, Rio Tinto?)
Is China using the global economic crisis to sweep into long-term deals? You betcha!
In Russia a loan was announced today where two oil companies receive $25 billion from China in exchange for long-term supply contracts. The frankest summation comes from Charles Freeman at the Centre for Strategic and International Studies in Washington DC:
“Realistically, there is nowhere to go but China.”
But China faces an enormous image issue - as they experienced during the Olympic Torch Relay. A large number of people around the world distrust the Government of China. Human rights, Tibet, Tiananmen Square, censorship and other serious issues are raised. But today the country with cash is king. And China is awash in foreign currencies. It is one country able to buy USA bonds to fund the massive bail-out.
China has become a lender of last resort - and one we are highly, highly dependent on. William Shakespeare said:
“Misery acquaints a man with strange bedfellows.”
Shove over America, Australia, Russia and others - make room in bed for Superhero China!
February 18, 2009 at 9:45 am · Filed under America, Globalisation, Australia
Barack Obama signed a bill today in Denver apportioning US$787 billion to stimulate the USA economy. That same day his aides say the President has not ruled out a second stimulus package.
Here in Australia AU$42 billion has been approved to kick-start the local economy. (Actually kick-start’s a poor verb. Australia hasn’t officially entered recession yet. The package will keep Oz on life support and out of the red.) Similar packages have been approved in dozens of other countries.
Yet on the day the bill was approved the Dow Jones fell, as did other major indices. The markets had already factored in the stimulus bill. They were responding to the dire news out of Japan. Tokyo forecasters say the country is in the worst recession since WWII. In many ways this downturn is looking more like a long-term depression that a temporary recession.
In the novel “Water for Elephants” by Sara Gruen readers follow a circus worker in 1930’s America. In one scene he is met at the train station by a local official and notes what an expensive car the man is driving. He comments that many would have been less excessive if they’d known what that Friday in October 1929 had in store.
So. We’re not the first to go through this. What did our grandparents and great grandparents do to survive? My Aunt Lottie washed plastic bags and reused them. Her husband Al saved string and had multi-coloured balls of it in various drawers. But more than that they did without.
Coles Supermarkets has already reported a decrease in steak sales and an increase in sausage sales. People are starting to trade down and do without.
What more can we learn from the dire decade of 1930 to survive the coming years?
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