Tuesday, February 03, 2009

Things To Ponder & A Cure For Depressing Economics

Things To Ponder:

a) Can you imagine if the Japanese Prime Minister was a Malaysian, we would have a field day with his name, Taro Aso.

b) There is a new proposal whereby the pay for CEOs and senior management of the banks that received US government funding be capped at Obama's pay of $400,000 a year (that includes the bonuses as well). While that is a populist idea, it will never work. Do you know how many staffers at each investment bank that makes more than $1m a year, they are in the hundreds. One thing which may work is capping their salary, but you will have to work out a formula for their bonuses and have claw back clauses inserted if future year losses eventuate.

c) Since the Chinese trade surplus is equal to up to 2/3s of the US trade deficit, this suggests that within the overall global balance China should, ideally, absorb about 2/3s of this contraction, roughly equal to 2% of US GDP. This is also equal to about 7% of Chinese GDP, which means that either

1) Chinese consumption is going to have to expand by 7% of GDP faster than production,

2) Chinese production is going to have to contract by 7% of GDP more than any contraction in demand, or

3) both will have to happen so that the sum is equal to 7% of GDP.

d) Germany now has a current account surplus of 7pc of GDP. It is hollowing the industrial core of Latin Europe. Germany is in breach of EMU’s implicit contract. The rules of the game are that surplus countries should boost demand. The Gold Standard collapsed in the early 1930s because they – then the US and France – refused to do so. The burden of adjustment fell on deficit states, who had to tighten yet harder. The downward spiral dragged everybody into depression. Germany and China are today’s violators. Their trade surpluses over the last 12 months have been $283bn and $279bn, respectively. They are exporting excess capacity.

e) The history of the crisis, starting in 1980s, when US policy encouraged securitization of mortgages, converting illiquid assets into highly liquid investments; US households shifted money into homes rather than savings accounts, and housing prices climbed; China, enjoying a trade surplus, collected US dollars and invested in US assets. A self-reinforcing cycle led US consumers to buy more, Chinese factories to produce more, banks in both countries to lend more

f) The profits for Porsche in 2008 was $11.6bn, even higher than its turnover of just $10.2bn. Profits attributable to actual selling of Porsche cars was just 12% of the $11.6bn profits. The rest came from a shrewd financial strategy and hedging with respect to its purchase of Volkswagen, which killed many hedge funds who betted that VW's share price would collapse. Now Porsche sits on top of a cash hoard of about $20bn. That is even greater than the total sum granted to the US big 3 car makers in the bailout funding. Thats why Porsche is now known as the hedge fund company which has a car making subsidiary.

Following the spate of depressing business and economic news, it may be timely to try and release some stress and negativity. Check out the videos below for maximum belly laughter. The first video is the cast of Whose Line Is It Anyway, doing possibly the funniest sketch ever, Living Scenery with the highly 'dubious' but sporting Richard Simmons.

The second and third videos are Part 1 & 2 of Jacky Wu's No-Laughing Allowed classroom. Enough said, crass but food spittingly funny.




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