In Massachusetts by-election winner Republican got 49% against 47% of his Democrat opponent and the world came crashing down last week. Obama announced his “Volcker Rule,” vowing to take Wall St head on, and markets plunged real heavy. The man on the street was vastly amused because he has written off the hope that the new Prez offered in 2008 and would now exercise his mind only in 2012. The rest of the world remained passive because one needs to have a BofA or Citi before one can think of forcing it to downsize! Who says economics has become more important than politics? Even Warren Buffett is demanding that assets of CEOs (and their spouses) of failed companies should be forfeited! Who knows, in 2012, he may consider being the Prez; if Berlusconi and Sarkozy can head governments, why not Buffett?

Volatility has declined significantly and confidence in the US and the dollar has apparently returned with a vengeance but basic figures cannot really be ignored. 30-year mortgage rates are now below 5%, between June 2008 and Sep 2009, outstanding construction loans plunged from 630 to $490 bn and gasoline demand is failing to perk up despite sheets of snow all over the country. US commercial mortgage-backed securities sales plunged from $237 bn in 2007 to $1.4 bn last year as commercial real estate prices in Dec 2009 were 43% below Oct 2007.

Dividends are once again being paid out of new (junk) bond issues as the so-called high-yield bonds returned 57% last year, and hedge funds are busy designing innovative products that can be sold to pension funds with or without inducements for managers. Citi expects a 17% increase in global M&A activity this year.

Never mind how different economies are performing, or are likely to perform. Obama’s fat cats are merrily continuing with carry trade, which has the ability to bugger the best and make the worst shine the most. Meanwhile, US is slapping a 10% tax on 20,000 indoor tanning salons to raise $2.7 bn in revenue.

China has reported GDP of USD 4.9 tn for 2009, and is likely to overtake Japan as the world’s second largest economy in 2010. Rio Tinto’s 49% jump in iron ore output in Q4-2009 is being attributed to Chinese demand. Analysts are vying with each other in doling out advice on hot money, inflation and bubbles and what not but the juggernaut seems to be rolling on. With retail sales still at around USD 2 tn (40% of 5), China has a long way to go. What others need to watch out for is prices of basics like oil and metals.

Greece, Argentina, Russia, Ireland, Portugal, Italy, Spain and Mexico are being viewed as risky economies. UK continues to worry about London’s status as a global financial centre, particularly after peak tax rate rises from 40 to 50% in April. Japan’s spending on plant and equipment is down about 25-30% and prospects of most east European economies are being viewed as lacklustre.

Spain has successfully reduced the number of illegal migrants from Africa,
Chile has elected conservative billionaire Pinera as its president, Hong Kong has been declared as the world’s freest economy for 16th consecutive year even as China has dropped to 140th, and its Disneyland appears to be growing steadily. Oil-rich Venezuela is facing a steep power crisis because of a severe drought but is continuing with its anti-West stance – French-Colombian supermarket chain Exito has been taken over by the government.

Singapore’s export shipments declined 11% last year, Kuwait is facing a popular demand for waiver of all interest on outstanding consumer loans. Icelandic banks operating in UK and Netherlands failed and the two governments provided money for repayment of deposits of their respective citizens. Now UK and Netherlands want Iceland govt to pay this money and the people of Iceland are refusing to approve this payment.

Japan Airlines finally failed to get a fifth bailout and filed for bankruptcy last week, making bigwigs like Toyota, Honda and Hitachi realize that shortfalls in pension plans can cause bankruptcy. JAL’s market value is about $ 150 mn or one standard passenger airplane.

Kraft finally got its hands on Cadbury, after raising bid to $19.6 bn, Ebay expects revenue of about $9 bn this year and its PayPal unit expects total payment volume of over $20 bn this year. Nestle is due to begin selling nutritional drinks for the elderly in Switzerland, Toyota expects to double its output of hybrid cars to a million units by 2011, Travelport is selling shares worth $2 bn to cut debt and Apple is serious about replacing search software of Google with that of Microsoft. Target is preparing to open stores in Canada and LatAm by 2013.

A trim and a shampoo for a dog costs over $100 in Japan, where annual spending on pets is $10 bn; in UK, sales of dog coats are up 70% because of the weather. After Russia, UK too has started cracking down on excessive drinking; measures include ban on speed drinking and unlimited drinking promotions.

A survey says young people in US are spending more than 53 hours a week on the net and a US firm is seeking patent for a new exclamation mark it has designed. Germany will soon have its first Muslim bank, with ten branches, which will charge a fee, instead of interest, for loans. Germany’s population decreased by about a quarter of a million in 2009. Italians’ wagers rose 13% to USD 78 bn last year. Americans have stopped splurging on bottled water; retail price has dropped from 7 to 2.5 USD per 12 liters.

Leave your portfolio in His hands and go to Haiti with half-a-dozen suitcases full of life saving drugs and inexpensive clothing, and a few cartons of packaged food. Consider it a spiritual investment that needs no hedging; the peace the trip would yield will be more than what any junk bond returned last year.

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