Sunday, 27 June 2010

Germany, France and UK resolved last week to live within their means, ignore sensory pleasures of speculation, and strike a balance between current consumption and conserving cash for the future. Budget cuts have been announced by all the three and UK is to hike VAT from 17.5% to 20%. They want a global tax on banks in general and financial transactions (read speculation) in particular. In simple words, the three leaders want their people to live within their means and start saving for a rainy day.

The elite and the media are ganging up against the Merkel-Sarkozy-Cameron trio. George Soros says Merkel is endangering democracy itself while Obama says Germany will be shirking its global responsibility if it starts living frugally. However, the Iron Lady has so far held her ground, though nobody knows the eventual outcome, particularly because China and Japan are stoically silent. It may not be easy to hoodwink this not-so-unformidable trio. Their populations are ageing, their banks are weak and fragile and the mercurial rise of the dollar has convinced them that cash inflows aren’t as endless for them as for the US. However, effective mudslinging at home turf may make mud cling to their galoshes, effectively weakening their resolve.

The US Senate sat through a 21 hr long session last week and produced what was expected of it – nothing. This ‘nothing’ too is unlikely to pass legislative muster because no corporate chieftain in US worth his Learjet is willing to give up the right to play poker with borrowed money.

As oil reached the shores of Panama City and Pensacola Beach, and otherwise prosperous fishermen started living off dole (compensation from BP), Tony Hayward watched a yacht race off the British coast. A US judge halted the halt on deep sea drilling ordered by Obama even as estimates of the Leak kept swinging wildly, going right upto 100,000 barrels a day. Who earned how much from the $100 bn plunge in BP’s market value would remain a mystery forever but perhaps more was earned in oil futures.

It was hilarious to see financial pundits making confusing sounds after China mocked a bow on yuan. The likes of Apple and Adidas were counting their costs and at the same time the St was speculating on their possible gains! It may not be long before the St knows that China isn’t going to let them play poker with the yuan; even S Korea has banned banks from lending in forex.

Besides Asia, developed world consumer is also saving more than ever before and it may not be long before sovereign funds are left with no option but to buy top rated corporate bonds too. The ability to use money productively is going to command a premium the kind of which has perhaps not been seen before.

An interesting trend is some biggies buying CNG and storing it in tankers for sale on a future date. Who knows, the trend might catch up to cover not only crude but some other commodities also. If one has enough money and ships, one can force manufacturers to pay more. Or may be industrial consumers will increase their inventories so much that speculators will become mute spectators.

Emirates mercurial growth has started rattling competitors; it already has more intercontinental seats than BA and Air France taken together and takes Asians to US via Dubai, instead of London, Paris or Frankfurt. China Southern is now the world’s third-largest (after American and Delta); it carried 66.28 mn passengers in 2009. Qantas has signed a code-sharing arrangement with China Eastern.

ICANN has decided to allot suffix .xxx to pornographic websites. Apple juggernaut is still rolling as over 3 mn iPads have been sold in as many months and iPhone keeps increasing its market share in smartphones worldwide. Whether Samsung and LG will be able to maintain momentum, edging out Nokia and RIM steadily, remains to be seen.

Citi’s legendary energy trader Andrew Hall, to save whose 100 mn paycheck Citi sold the division he headed, has raised $1 bn for a new offshore commodities fund. JPMorgan Chase may buy Brazilian asset management firm Gavea, having $5.3 bn in assets, and Societe Generale seems to be treading cautiously in pursuing legal action against Jerome Kerviel, whose unauthorised trades cost it over $6 bn.

Biovail (psycho drugs) of Canada is buying Valeant Pharma of US in a $3.3 bn deal, Corn Products is to buy National Starch from AkzoNobel for $1.3 bn in cash, and Rio Tinto and BHP are making progress in their $116 bn iron ore JV which has received Australia govt approval; it will be larger than Vale of Brazil and shall account for more than a third of world trade in iron ore.

Las Vegas Sands has opened its casino in Singapore officially and is confident of achieving 150,000 visitors a day, Kellogg has recalled 28 mn boxes of cereals from US stores because of a peculiar smell reasons for which have not been explained, and Ford is to build a new $450 mn facility in Thailand that may employ over 10,000 eventually. Rumours of Hasbro being up for sale are persisting, despite its denial.

Population of millionaires ($1 mn plus investable assets) is now about equal in US, EU and Asia-Pacific – about 3 mn each. Wealth owned is also about the same, around 9-10 trillion. 38 amateur physicists have successfully fabricated small nuclear reactors, including a 15 yr old. A quarter of all beaches in Germany are polluted to unacceptable levels. Approval is being sought for selling a genetically modified salmon fish for human consumption. The Japanese have started celebrating divorce by saying ‘I do’ and then holding ceremonies similar to weddings.

Where does the world go from here? Take at least 30 days off from work like the French, cook more at home and start measuring GDP by the Happiness Index like the tiny Bhutan.

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