Sunday, 25 April 2010

“You could sell one 50,000 square-foot supermarket in the UK and buy something 10 times the size in China,” said a Tesco director last week. Retail price of most products sold by the big retailers are about the same all over the world.

G20 leaders patted themselves for the recovery act but do not seem to have any plan to withdraw stimulus. US is almost gung ho now; recovery is V, not U-shape. Profits are up, equities are up and the dollar is up. In China Q1 retail sales leaped 18%, electricity consumption was up 24.2% and trade surplus declined at least 50%, despite exports having largely stabilised. Even if trade surplus declines 50% for the full year, it will still be around $100 bn ($196 bn in 2009) in 2010. However, Chinese consumption cannot compensate world economy for decline in developed world consumption; US, EU and Japan consume 87% of all drugs produced in the world.

London expects to recover financial jobs steadily in coming years, Russia has started raising low cost dollars by selling bonds, Japan has announced plans to support its bullet-train companies bidding for US projects, and Australia is tightening rules for FDI in real estate. Germany now experiences unwanted surge in electricity output on windy nights as wind energy now accounts for 7.5% of total demand. In Spain too utilities are being forced to lower prices because of high generation by windmills.

Currencies and commodities, including oil, have become remarkably stable, pushing equity indices up. However, non-financial economies (the world less US+UK) shouldn’t uncork champagne. Despite skeletons tumbling out of rating firms cupboards, markets are stubbornly refusing to recognize systemic deficiencies. Big boys on the St have now started looking at smaller (below 50 mn) retirement funds and financial innovation seems to have gained traction again. Senate can discuss legislation until eternity and Obama can keep scolding the St but there is no hope on the horizon. The focus on salaries can only hurt economic development; how would somebody earning half-a-million a year react when taken to the Bahamas for a luxury holiday in a private jet?

Companies of all hues, around the world, are flush with funds. At least five trillion, may be ten, is looking for parking. Near term future would largely depend on how much money flows into what direction. Financial flows can make and mar small economies with equal ease.

The volcano in Iceland cost airlines an estimated $2 bn in lost sales while hotels made hay. Dutyfree shops sulked, ATF demand plunged, traffic on travel Web sites surged, and flowers and food products worth millions perished. BMW faced components shortage. Few seemed to know anything worthwhile about impact of ash on aircraft engines.

Apple continues to dominate the tech-domain; sold 8.75 mn iPhones in latest quarter, notching sales of $13 bn plus. AT&T got nearly a million new customers in Q1 because of its exclusive offering of iPhone.

Google, fighting censorship in over 20 countries (China isn’t alone) may soon face severe censoring in Australia too; Brazil, Germany and India demand significant content removal. Lenovo has emerged as the prime contender for Palm, after Huawei declined. China Mobile Q1 sales rose 7.7% to over $16 bn, though subscriber growth declined and ARPU plunged from 80 to 70 yuan. Amazon is being pressured by NC state to provide details of its customers.

Chrysler says its cashflow turned positive in Q1 and Toyota has been downgraded by Moody’s but that hasn’t prevented its share from recovering. Boeing delivered 108 (121) commercial planes last quarter and Japan Airlines debt is being sold at 80% by lenders.

Seed giants Monsanto, DuPont and Syngenta are now after drought-resistant seeds that offer higher than normal yields, and Asahi, hitherto serving beer mostly to the Japanese, though having presence in US and China, is on the prowl for acquisitions in India, Indonesia and Russia. Heineken revenue declined marginally in Q1 as sales in Russia plunged 40% because of a 200% hike in tax.

Novartis Q1 sales rose 25% to $12 bn, of which over one billion came from the now redundant H1N1 flu; it owns 25% of Alcon (eyecare) and might buy a further 52% from Nestle. Peabody seems to be coming closer to acquiring Macarthur Coal of Australia; latest offer says CITIC, ArcelorMittal and POSCO can retain their stakes. Toshiba revenue fell 4.1% to $63.8 bn last year. Deutsche Bahn is buying UK train operator Arriva for $2.5 bn and plans to have pan-European transport operations, including buses. Food companies like Nestle and Danone and fast food chains like McDonald’s seem to be doing well. Same goes for Pepsi and Coke.

Eurozone is worried about 500-euro bills being accumulated by terrorists and tax evaders, though one wonders how a ten trillion plus economy is surviving with currency-in-circulation of 800 bn euros. Japan is looking at algae yet again for producing fuel. While Obama wants to raise educational standards, a third of US teens continue to text 100 times a day.

The Apple engineer who left the next iPhone’s prototype at a bar serving German beer has been offered a free trip to Germany by Lufthansa. German media says the computer was invented by a German engineer in 1936 but it wasn’t pursued. In China, a farmer is assembling robots at his home, using scrap materials; they pour tea, light cigarettes and even paint. The developing story is the spread of a deadly fungus, details of which will emerge only after Apple unveils the next model of iPhone. Meanwhile, a study has been initiated in UK to study effects of mobile phones on 250,000 users across Europe.

If Greek deficit turning out to be euro 2.5 bn higher than previously claimed can cut equities valuations by hundreds of billions and increase Greece’s borrowing costs by several billion, anything can happen. Keep tweeting, texting, or chexting or whatever. Tomorrow will be another day.

xxxxx