Apocalypse Today: Divination Based on Econometrics

Today we all meet our creator. That’s according to the predictions of a religious Christian sect.

Here’s the Huffington Post,

Circled dates dot a calendar on John Ramsey's refrigerator door. They show the busy life of a 25-year-old: dinner parties, birthdays, holidays. But only until May 21.

Every month after May has been crossed out. As has all of 2012.

Ramsey is one of thousands of followers of a loose-knit Christian fringe movement whose members are increasingly found on sidewalks, in parks and at transit hubs in major cities throughout the United States.

They recite passages of the Bible line-by-line and say they have decoded a message for humanity: The world is about to end.

"God says when you see the sword come upon the land, you blow the trumpet and you warn the people," says Ramsey, paraphrasing Ezekiel 33:3. "All I'm doing is telling what I know."

Ramsey and the movement's followers say that at 6 p.m. on Saturday, May 21, the ground will quake, graves will open and many of the dead will ascend to heaven. Two hundred million of the 'saved' -- dead or alive -- will float up. Those left behind will be doomed to live among blood, destruction and disease for five months before God annihilates the Earth on Oct. 21.

Now how did this sect come about with the prognosis of today’s supposed rapture?

Again the Huffington Post, (bold emphasis added)

Camping, a frail 89-year-old who speaks in a slow but sonorous voice for hours each day on his "Open Forum" call-in show, is convinced that he crunched the exact date of the Rapture through a complex set of equations.

For example, he says, certain numbers repeat in the Bible along with particular themes. The number five means "atonement." Ten means "completeness." Seventeen is "heaven."

"Christ hung on the cross April 1, 33 A.D.," he says. "Now go to April 1 of 2011 A.D., and that's 1,978 years."

If you multiply that number by 365.2422 -- the number of days in the solar calendar -- it equals 722,449. And if you add 51 (the number of days between April 1 and May 21) to that number, it equals 722,500.

Multiply five by ten by 17 to equal 850, and multiply 850 by 850 and the result is the same: 722,500.

Another article brings about the same math based predictions but with a little twist.

From the Daily Beast (bold highlights mine)

Robert Fitzpatrick brings some papers to explain to me how the May 21 date was discovered. It’s not an easy thing to understand. Harold Camping’s calculation includes numbers divined from the founding of the state of Israel in 1948; Jesus’ order to “flee into the mountains” in Matthew 24; and the jubilee year of 1994. From there Camping performs handsprings back and forth through biblical time before ending up, with a great flourish, on May 21, 2011. For Fitzpatrick, the calculation’s outlandishness confirms its rightness. “A genius could not understand this,” he says, “because God has to open your mind to allow you to understand this.”

Fitzpatrick took Camping’s math and laid it out in a self-published book called The Doomsday Code, a soup-to-nuts guide to the Rapture. That cost him a few thousand dollars. He poured the rest of his savings into signage. Fitzpatrick’s belief in the May 21 date has been buttressed by various “proofs.” For instance, it is Camping’s contention that God imbues numbers in the Bible with special meaning. Five means atonement; 10 means completeness; 17 means heaven. If you were to multiply atonement times completeness times heaven and then, for a reason that remains mysterious, multiply that sum by itself again:

(5 x 10 x 17) x (5 x 10 x 17)

You’d end up with 722,500. Fast-forwarding 722,500 days from the date of the crucifixion—at least, the date as divined by Camping—lands you on May 21, 2011, the date of the Rapture. QED.

Like any instruments, which can be use for good or bad or for advancement or retrogression, mathematics can be used for many other matters (in the user's interests), whether for politics, environment, social signalling or even for religion (as the above).

Maybe like global warming, these divine 'econometric' (application of statistical and mathematical techniques in solving problems) modelers may (likely) have gotten their assumptions, applications or computations all amiss.

That's unless what they have been using could be extraterrestial models.

Video: Markets Everywhere: Markets by the Railway

Here is a food market that operates on a railway track. It's the Mae Klong Market in Thailand. (hat tip Mark Perry)

End The IMF

The sexual molestation scandal has compelled the resignation of IMF’s Dominique Strauss Khan.

Now there are have been speculations on his replacement.

As of yesterday bookmakers have placed the odds on some possible replacement candidates.

This from the Economist

Here are some of the people viewed to be plausible contenders to replace Mr Strauss-Kahn, and the odds on their getting the top job according to William Hill, a British bookmaker. A win for a non-European would be a first for the IMF, as would the appointment of Christine Lagarde, who would be the first woman to head the organisation.

Meanwhile, the Wall Street Journal describes part of how IMF politics works.

From the WSJ

Because the U.S. and European nations together have always held a majority voting stake in the IMF, that unwritten convention has guided the leadership process for the past six decades. Any executive directors on the 24-member board — representing the IMF’s 187 governments — can propose candidates for consideration, generally based on guidance from their home countries. In turn, the board has used informal straw polls — rather than formal recorded votes — to gauge support for the candidates. (Though formal voting isn’t used, the distribution of voting shares helps determine who can garner enough support as a candidate.)

At times, though, the U.S. and Europe have been divided on their options. In 2000, for instance, the European Union formally backed German deputy finance minister Caio Koch-Weser to take the top post at the fund, replacing longtime IMF Managing Director Michel Camdessus of France. But the U.S. balked, leading the White House press secretary at the time to publicly oppose the choice. Many developing nations wanted then-Acting Managing Director Stanley Fischer, an American born in Zambia, to fill the job.

After a month of heated public debate, the IMF eventually settled on German national Horst Kohler, who was president of the European Bank for Reconstruction and Development.

The U.S. has been expected to take a back-seat role in choosing the next managing director, focusing instead on its traditional role of picking the IMF’s No. 2 official. The current No. 2, John Lipsky, is slated to leave his post in August. For now, though, U.S. officials have put that process on hold considering the rush to fill the top post.

Since the IMF’s founding, all 10 IMF managing directors have come from Europe. The managing director is typically a former finance minister or central bank governor from a Western European country.

So the IMF has been mostly been a US-Europe turf, where the US has allowed Europeans to take the helm since.

Yet some have floated that the Kahn episode could even be a frame up.

Writes Bob Wenzel,

I continue to believe that the most likely explanation for him coming out of the bathroom naked is that he was expecting someone.

If he did make a call to an escort service than I fully believe a government agency could have set DSK up. What's more, this is a major French hotel, which means it his highly likely that French government agents are floating around the hotel as guests and employees.

The reasons: perhaps because he “broke free from the party line” (may have offended some vested interest groups) with his current policies or perhaps it was about the upcoming national elections in France or a combination of both.

A French poll reveals that about 57% believes that Kahn had been a ‘victim of a plot’

This only shows how politicking could have played a nasty part in the sordid Kahn affair which also reveals on the operational procedures of the IMF—which seems indistinguishable from any national agencies which redistributes resources politically.

Also the US-European political hegemony of the multilateral institution translates to the channeling resources to uphold their political interest. And this is why Emerging Markets are unlikely to gain a leadership foothold in the near future. The division of spoils belong to the winners.

Besides, the fundamental role for IMF’s existence have been exhausted, where the agency’s operations has shifted from ‘monetary’ to ‘developmental’.

As Cato’s Doug Bandow writes, [hat tip Dan Mitchell] (bold highlights mine)

The IMF's founding purpose vanished when the system of fixed exchange rates collapsed in the early 1970s. But instead of closing up shop (no jobs for international bureaucrats in that!), the IMF switched to promoting development. That is, it became a welfare program for Third World governments (and, more recently, for Eastern Europe and even Greece).

So maybe it’s not time to seek a replacement. Maybe it’s time for the IMF to stop meddling in the affairs of nations.

Maybe it’s time for the IMF to stop propping up collectivist regimes, bailing out unsustainable systems and promoting interests of political operatives behind the scenes.

As Leland B. Yeager writes in Cato (Hat tip Don Boudreaux) [bold emphasis mine]

I am inclined to concur in points made by Ian V squez (1997) and Allan Meltzer (1995) about activities of the IMF (and similarly of the World Bank). These tend to support government domination of economies, despite ``conditionality'' purporting to do otherwise; and politicization of economies increases the scope for rent-seeking. Thrusting debt onto poor countries, putting them onto a debt treadmill, ill serves economic development. Funds for bailouts create moral hazard, tending to delay reforming crisis-prone policies (see The Economist 1997b). New issues of SDRs, which the IMF staff likes to propose, accomplish international transfers of wealth in a way that most legislators do not even understand. Self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.

Maybe it’s time to abolish the IMF.

LinkedIn Doubles on Listing Date, More Signs of Tech Bubble?

For me, the success of IPOs have mostly been sentiment based, where the direction of the general markets account for the success of specific issuance. In other words, bull markets prompt for fantastic returns which would draw in more issues to list. Hence ascending markets will lead to more IPOs.

Conversely, IPOs are usually nonevents during bear markets (the above chart I earlier posted here). Ergo, IPOs can function as indicators of the whereabouts of a bubble cycle.

I recently posted about signs of brewing bubble on internet stocks.

LinkedIn which has been already a hit in the secondary markets made a scintillating debut yesterday.

In the NYSE, LinkedIn prices more than doubled!

From the Marketwatch,

LinkedIn’s stock LNKD +108.58% soared at one point more than 140% to $108.25, before receding to $94.25 by the close of its first day of trading on the New York Stock Exchange.

Propelled by vigorous demand leading up to its initial public offering, LinkedIn’s IPO priced at $45 a share, at the top end of a recently raised range of $42 to $45 a share. Previously, the IPO pricing range had been $32 to $35 for shares in the professional-networking service.

Bespoke Invest notes of IPOs with best first day returns during this cycle.

LinkedIn topped two Chinese internet companies, Youku.com (video hosting service) and Qihoo 360 Technology (internet anti-virus and security products). Again the best returns have all been in the internet sectors.

This means listing of internet stocks have drawn in alot of speculative activities and will likely serve as precedent for more frenzies.

As Tech columnist Eric Savitz writing in Forbes writes, (emphasis added)

In other ways, the current situation looks nothing like the first Internet bubble. (For instance, there is no insane salary-inflating battle for journalists this time around. Sigh.) The most obvious difference is that until now, all of the action has been taking place in the venture capital market, or at least, in the newly emerging secondary market for venture investments. There have been just a handful of IPOs, aside from a flurry of Chinese Internet deals. But many of the key social networking players have been showing signs of inching toward the exits. Facebook hasn’t filed yet, and neither has Twitter, Zynga or Groupon. (Though Zynga and Yelp both threatened to abandon San Francisco unless the city exempted them from an onerous tax on employee stock options they could have otherwise faced going public while based in the city by the Bay.) Skype, after a year in registration, agreed to be acquired by Microsoft for $8.5 billion. Zillow has filed, though and so has Pandora. There’s still the makings here of a 1999-like IPO explosion...

The market’s hunger for LinkedIn shares is a demonstration of the kind of speculative fervor last seen in the recently popped bubble in the silver market. This isn’t really about what’s rational, it’s about dreams and imagination. The risks here are obvious; buying LinkedIn shares at 20, or 30 or 40x last year’s revenues is giant game of chicken that I would personally advise against. LinkedIn is not Pets.com; it is a real company, with impressive growth, and it operates in the black. But is the current valuation rational? I’m not convinced.

History may not repeat itself, as Mark Twain said, but they could rhyme.

Cartoon of the Day: Prices are Evil

From Karen De Coster:

Raising prices is “gouging.”

Lowering prices is “predation.”

Keeping them the same is “collusion.”

Cutting costs is “scheming.”

So for governments, market prices signify a ‘damned-if-you and damned-if-you-don’t’ thing.

Yet without the pricing system there won’t be economic calculation which functions to coordinate or discoordinate the distribution of resources.

As Ludwig von Mises aptly pointed out.

A government that sets out to abolish market prices is inevitably driven toward the abolition of private property; it has to recognize that there is no middle way between the system of private property in the means of production combined with free contract, and the system of common ownership of the means of production, or socialism. It is gradually forced toward compulsory production, universal obligation to labor, rationing of consumption, and, finally, official regulation of the whole of production and consumption.

The Bolsheviks have tried this and failed, from the PBS.org (bold emphasis added)

1917-1920: With the October 1917 revolution, the Marxist concept of the moneyless economy becomes a desired goal, but not yet a practical one. The Bolsheviks nationalize the banks, but make no attempt to restrict inflation. With the destruction of the market economy, inflation soars, and money becomes virtually valueless. A black market based on barter develops to fill the vacuum.

Fox's Juan Williams: Ron Paul is Changing the Republican Party

Fox political analyst Juan Williams says Ron Paul has been changing the Republican Party. (hat tip: lewrockwell.com)



Whether 2012 will reckon as the 'Ron Paul moment' or not, 'changing the Republican Party' implies that libertarianism has been gaining constituents. This should be something to cheer for.

Can We Survive a World with 9 billion people?

Prolific author Matt Ridley says yes (bold emphasis mine)...

We trebled yields in the last 60 years without taking extra land under the plough. If we did that again – by getting fertilizer to farmers in Africa and central Asia, by cutting losses to pests and droughts through ever more subtle genetic manipulation, by improving roads and encouraging trade – then we could feed nine billion better than we feed seven billion today. And still retire huge swathes of land from farming to rainforest and other forms of wilderness.

The two most effective policies for frustrating this uplifting ambition are: organic agriculture and renewable bio-energy. Organic farming means growing your nitrogen fertilizer rather than fixing it from the air. That requires more land, either grazed by cattle or planted with legumes. The quickest way to destroy what wilderness we have left is to go organic. Bio-energy (growing crops to make fuel or electricity) takes food out of the mouths of the poor. In 2010, the world diverted 5% of its grain crops into making fuel, displacing just 0.6% of oil use yet killing an estimated 192,000 people by tipping them into malnutrition through higher food prices. We should stop such madness now.

...provided environmental politics would not lead to vicious government meddling which would subvert earlier victories with deleterious policies that would function as the proverbial cure which is worse than the disease.

He writes about how Malthusians like Paul Ehrlich, who wrongly forecasted for a worldwide cataclysmic famine, had mainly been foiled by creative persistency of the father of Green Revolution Nobel Laureate Norman Borlaug, one of the genuine unsung heroes of the world (my earlier post here).

He also writes about how technology has substantially increased farming efficiency which has led to a massive reduction in land usage for agriculture. (bold emphasis mine)...

We currently feed nearly seven billion people by farming about 38% of the land surface of the planet. If we wanted to feed that many people by using the techniques, varieties and – mostly organic – fertilizers of the 1950s, we would need to cultivate roughly 84% of the land surface. There goes the rain forest, the national parks, the wetlands. The intensification of agriculture has saved wilderness.

...and also how famine prevention defused the population time bomb.

Read Mr. Ridley’s fantastic article here

Bottomline: Mr. Ridley bets on human ingenuity (and not on econometric models) brought upon mostly by free trade. And so do I.

Deepening of Information Age: More Proof of Structural Changes in Job Markets

With the deepening of the information age, jobs will be characterized by increasing specialization, as said in many occasions in this post, such as here here and here

Here is an anecdotal proof provided by a large US manpower agency.

From the Wall Street Journal Blog (bold highlights mine)

Joerres said the global skills shortage applied particularly to technical areas, like specialized trades, but also sales staff. “There is still unemployment, but companies are having a difficult time finding the people they need to fill their positions. As the world is becoming more technical, the sales staff are having to become more technical, too,” Joerres said.

The shortage also applied to laborers, especially in developing markets. “You cannot just throw people at production to get more output,” Joerres said. “With the use of (computer numerical control, or CNC) machines, for example, it is more difficult to find the right people.”

ManpowerGroup’s sixth annual talent shortage survey, to be published Thursday, will show that persistent talent shortages across many geographies and industry sectors are frustrating employers who struggle to find qualified talent amid an oversupply of available workers.

And this has been a worldwide phenomenon. From the same article (bold highlights mine)

Although European countries aren’t yet feeling such an acute impact of talent shortages, the U.S. has seen a considerable uptick in the number of employers who can’t find the talent they need, Joerres said.

India now has the second-highest problem with skilled labor shortages. “The number of companies in India reporting difficulty filling vacancies is second only to Japan,” Joerres said.

“India is a big place with lots of people but there’s a shortage of assurance engineers, people who can read blueprints, designers and (computer-aided design, or CAD) designers.”

Manpower, based in Milwaukee, is looking to expand its operations in emerging markets that make up around 15% of its sales, which reached $5.07 billion in the first quarter of 2011.

The more the specialization, the more aggregate based statistics will become flawed and unreliable.

So when politicians and their ‘expert’ apologists speak about solving unemployment with use of aggregates, expect that these approaches to fall short because they are mostly likely addressing the wrong (industrial age based) issues.

Are US Farmlands the Next Bubble?

From Bloomberg’s Chart of the Day

U.S. farmland may turn into “the next big speculative bubble” as prices climb, according to Robert J. Shiller, a Yale University economics professor.

The CHART OF THE DAY shows that the value of agricultural land in the upper Midwest has doubled since 2002, according to data compiled by the Federal Reserve Bank of Chicago. The chart also depicts farm values in inflation-adjusted terms, which are approaching their highs from the 1970s. The region encompasses Illinois, Indiana, Iowa, Michigan and Wisconsin.

Shiller, whose book “Irrational Exuberance” foreshadowed the end of the 1990s surge in stocks, wrote yesterday that farms are “my favorite dark-horse bubble candidate for the next decade or so.”…

“Farmland, as least in certain places, seems to have the most contagious ‘new era’ story right now,” Shiller wrote. He cited the risk of food shortages related to global warming as contributing to a boom in the U.K., along with the U.S.

The price trends of farmlands (not only in the US) will almost entirely depend on the actions of the commodity spectrum. If the US and other governments continue to massively inflate, then commodities will respond accordingly. Farmlands will subsequently respond too.

It would signify as utter nonsense to say that everything that goes up represents a ‘speculative bubble’. This assumes that current conditions are hunky dory except for the ‘irrational exuberance’ by the marketplace.

Yet one would realize that it isn’t just farmlands but also the technology sector showing semblance of ‘bubble’ actions. The point being—you won’t have symptoms of bubbles (in the US and elsewhere) without fuel to inflate them.

And $6.4 trillion question is who’s been providing that?

Besides, hasn’t it been the morbid fear of falling prices that has led to the corresponding policies designed to boost prices higher?

Essentially surging farmlands (and commodities) represents the proverbial “be careful of what you wish for” pathology.

Irrational exuberance represents the secondary cause and not the main mover.

US CPI Inflation’s Smoke and Mirror Statistics

Cato’s Mark Calabria asks Is Housing Holding Back Inflation?

He writes,

Also of interest in the April numbers is that if you subtract housing, which makes up over 40% of the weight of the CPI, then prices increased 4.2 percent — twice Bernanke’s measure of stability. What has always been problematic of the housing component is that its largest piece is an estimate of what owners would pay themselves if they rented their own residence. This estimate makes up about a fourth of the CPI. As the chart below demonstrates, for much of 2010, the direction in this number was actually negative, which held down CPI over the last year. The current annualized figure for owner’s rent is 0.9 from April 2010 to April 2011. Oddly enough, this is below the actual increase in rents, which was 1.3. For most homeowners, the real cost of housing — their mortgage payment — has likely been flat, not decreasing. So whatever benefit there has been to declining housing costs, most consumers are unlikely to feel any benefit from those declines, if they are actually real.

Mr. Calabria is right. Housing data has been foundering. US housing starts dropped 10.6% in April says the Financial Times.

US Federal Reserve researchers and their apologists (academic and institutional representatives) have staunchly been defending (denying) Fed policies, by dissociating rising commodity prices with CPI inflation.

Yet, ironically, the US government has waged war on inflation by trying to influence the prices of commodities.

Importantly, putting into context Mr. Calabria’s concern, the construct of the US CPI seems mostly a statistical smoke and mirror.

Some great charts from Dshort.com can elaborate on this.

The above is the CPI breakdown

The above is the % change of each component of the CPI.

Except for housing, apparel and recreation all other categories have been moving sharply higher!

Dshort has more charts of CPI relative to Energy, Tuition and CPI versus core CPI here-where you can see the difference.

So unless you don’t eat or travel or have children in school, inflation seems nonexistent only for ivory tower based experts.

Also, it would be a wonder why Chairman Bernanke has refrained from mentioning ‘core inflation’, as Forbes Brian Domitrovic observes,

Heard a lot about “core inflation” from Federal Reserve chairman Ben Bernanke lately? You haven’t, because two months ago his handlers had him stop using the term. Now he uses substitutes, such as “headline” versus “underlying” inflation

What’s with the jargon? Everyone knows that prices are going up. Corn on the cob that used to sell a dollar a bushel is now a dollar each. Talk about core inflation: These days even cobs (which feed pigs, after all) at the center of the fruit of the stalk are worth a pretty penny.

Suppressed CPI gives the Fed the leeway to inflate more.

I am reminded of Mark Twain who once said, lies, damned lies and statistics.

War on Speculators: Restricting Short Sales on Sovereign Debt and Equities

How does government resolve the problem of their profligacy? Well, blame the speculators (a.k.a. markets)!

From the Wall Street Journal

European Union finance ministers Tuesday reached an agreement on rules limiting short-selling of shares and sovereign debt, overcoming concern from the U.K. that the legislation will give the EU's new securities regulator too much power.

The ministers must now negotiate a final version of the legislation with lawmakers at the European Parliament, which favors broader rules that would also cover short sales of credit default swaps linked to sovereign debt.

France and Germany in particular have blamed short-selling of sovereign debt for having exacerbated the euro-zone debt crisis, though regulators say there is little evidence that trading activity has caused the yields of Greek, Irish and Portuguese bonds to soar in the past year.

These has been a continuing motion to pass the blame on everyone else in what truly represents as the unintended adverse consequences of past policies.

Proximity Based Manufacturing Supply Chains as Trend of the Future?

The Economist proposes that the current trend in global manufacturing could shift based on the following priorities, other than labor arbitrages.

-Proximity to customers

Many multinationals will continue to build most of their new factories in emerging markets, not to export stuff back home but because that is where demand is growing fastest.

-Inventory Management

Firms are also trying to reduce their inventory costs. Importing from China to the United States may require a company to hold 100 days of inventory. That burden can be handily reduced if the goods are made nearer home (though that could be in Mexico rather than in America).

Read the rest here

Ballooning inflation means not only rising wages in Emerging markets which erodes the opportunities for labor arbitrage, but may also extrapolate to substantial increases in transportation costs which could alter the cost benefits of outsourcing.

So perhaps proximity based supply chains could be a dynamic that could gain a larger role in the future.

The Wonderful Effects of Deflation in the Telecommunication Sector

Telecom fees continue to fall almost everywhere.

Notably, the largest decline can be seen in developing economies. Yet in spite of this, developed economies still maintain the lowest rates.

From the Economist,

DEVELOPING countries still pay far more for communications than developed countries as a proportion of overall income. But over the past two years these services have become more affordable worldwide, according to the ITU (International Telecommunication Union). The ITU’s ICT price basket combines the average cost of fixed-line telephones, mobile phones and fixed-line broadband internet services, calculated as a proportion of gross national income per person. (Broadband is not shown on the chart because in countries where it is still rare, its high cost swamps the chart and makes it difficult to read.) Africa made the biggest gains. Of the countries covered, seven countries had overall price-basket declines greater than 50%, mainly because of declines in fixed broadband. Mobile-phone charges are higher in developing countries in part because many customers pay for calls using pre-paid scratch cards rather than via monthly contracts which include large "buckets" of calling time for which the effective cost per minute is much lower.

Developed economies have the natural advantage of having lower rates primarily because of accumulated wealth (capital stock) and high productivity.

This also shows that an industry once thought as “natural monopoly” has proven to be a myth.

As Professor Thomas DiLorenzo writes,

The biggest myth of all in this regard is the notion that telephone service is a natural monopoly. Economists have taught generations of students that telephone service is a "classic" example of market failure and that government regulation in the "public interest" was necessary.

The ITU seems reticent on why costs have been falling. Their narratives have mainly focused on the developments of falling prices rather than the essence of what makes cost of telecom services decline.

Nevertheless I’ll quote the ITU in 2008,

Market liberalisation has played a key role in spreading mobile telephony by driving competition and bringing down prices.

Lastly, telecom fees signify as great examples of what we shouldn’t be afraid of—deflation.

On the contrary, basic economics in the telecom sector has worked magnificently...

...where falling prices (arising from market based competition) equates to greater volume. This has translated to mass adaption by the public. Worldwide, there are 69 mobile subscribers per 100 people and growing. Chart from Google Public Data

To quote ITU’s Secretary-General Dr Hamadoun Touré

With ICTs now a primary driver of social and economic development, these results are highly encouraging...Our next challenge is to find strategies to replicate the ‘mobile miracle’ for broadband, which is fast becoming basic infrastructure. Countries without affordable broadband access risk falling quickly behind.

Well, the answer to the desire for "mobile miracle" in broadband should be the same dynamics that has made the above circumstances possible—market liberalisation!

Video: Morality of Profits; Should We Give Back Wealth to the Society?

Billionaire-philanthropist Bill Gates says that the we should pursue the idea of giving back wealth to the society.

In this video the illustrious Tom Palmer explains the morality of profits by distinguishing between wealth obtained from voluntary and involuntary (pelf) exchanges.

As Ludwig von Mises once wrote,

Profit is the reward for the best fulfillment of some voluntarily assumed duties. It is the instrument that makes the masses supreme.

Are Internet Stocks A Bubble?

That’s an interesting question posed by the Economist in a recent article.

They note of three powerful forces among many influencing the evolution of the internet world particularly, rapid advance in technology, wider range of willing investors and globalization

Read their explanation here.

Nevertheless they also point to the following as beacon...

Lofty prices in the secondary markets.

The Economist writes,

Their task has been made easier by the advent of secondary markets in America, such as SharesPost and SecondMarket, that allow professional investors to trade the equity of private companies more efficiently. They have also made it simpler for employees and angel investors to offload some shares—and have enabled the world at large to observe a remarkable rise in valuations

And the winning streak of technology stocks.

I talked about the potentials of the technology sector as a source of bubble where I used the Charles Kindleberger model of dislocations.

Here is what I wrote in July 2010

Some factors that may prompt for a technology based dislocation (Kindleberger model) bubble are the following:

-less government intrusion in the market clearing process of the previous dot.com bust,

-swift obsolescence rate of the technology cycle and or rapid rate of innovation could mean new applications

-globalization means more consumers of technology products and services, thus a wider reach and bigger markets, albeit a more niche oriented one (another potential source of dislocation)

-importantly, freer markets which allows for more intensive competition could spawn heightened innovation from which new products with widespread application could emerge.

Yet there are many factors from which technology should play a role in shaping markets and the economy. Fundamentally this involves greater dispersion of knowledge and the deeper role of specialization, which some have labeled as the Hayekian Moment.

The impact of which should include vastly improved business processes via the development of organizational capital, provide for more real time activities which immensely reduces transaction costs thereby generate an explosion of commercial or commercial related activities, and significantly flatten organizational hierarchy which becomes attuned to the dynamics of a more competitive environment.

Economic development trends appear to be tilted towards having a greater share of technology based service sector. The more competitive an economy is, the greater the share of the technology based service economy.

This, essentially, is the running transition away from the industrial age towards the information age.

Thus, free market based competition has been directing economic development towards more specialization, or in Austrian economics terms-the lengthening of the production structure.

So a Kindleberger bubble should be on our watch list.

Given the above plus the artificially suppressed interest rates and credit easing policies (a.k.a. quantitative easing), this essentially combines segments of the Austrian Business Cycle with the Kindleberger’s model, which means the answer is a likely yes; the internet sector would seem like candidate of an inflating bubble.

But remember bubble cycles signify a process. This means that internet/technology stocks can stretch higher until it reaches its maximum point of elasticity where eventually it snaps.

Besides that’s what US authorities have been looking for, a replacement bubble.

The Ten Growing and Dying Industries in the US

The Wall Street Journal compiles a list, from a study of IBIS World, of the rapidly growing industries, as well as, dying industries in the US.

First the sad news.

The Dying Industries

According to the WSJ Blog,

The dominance of the Web and digital media also puts Newspaper publishers, record stores and video-rental companies on the list. Meanwhile, photofinishing also takes its place among the top 10 dying industries thanks to the growing influence of digital photography.

Cheap imports are blamed for a decline in mills and apparel manufacturers. Companies that rent formal wear are also counted among dying industries amid both competition from abroad and lower prices making owning your own formal wear a more attractive option than renting.

The only clear recession casualty that makes the list is manufactured home dealers. The housing boom led to a surge in the industry, but now years after the bubble burst the sector has continued to struggle.

I have a different view from the political correct undertones of the above narrative.

The dying industries illustrates how the US economy has been evolving from commoditized (highly price sensitive) low value industries to high value technology based industries.

Now for the good news.

The Sunshine ‘Thriving’ Industries

Again the WSJ Blog

Unsurprisingly, the list is led by the tech and environmental sectors, which take up eight of the ten spots. There’s some good news for some of those in the top 10 dying industries. While wired telecom carriers dominated the dying list, voice over Internet protocol leads the list of thriving industries, illustrating the shift from one technology to another. Similarly, while newspaper publishers are among the dying industries, Internet publishers are counted with the thrivers.

Meanwhile, demographic shifts are also adding to the list of fastest-growing industries. Insurance-claims adjusters are in a growing sector as the Baby Boom generation ages. Unfortunately, a growing population also increases the need for prison guards, as correctional facilities make the list of thriving industries.

I observe two major factors from the fast expanding sectors:

One: creative destruction has been working her wonders.

Second: favored government sectors has been benefiting from political largesse.

As for creative destruction, let me quote Joseph Schumpeter Capitalism, Socialism, and Democracy (1942) (p. 83)

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. [emphasis added]

Bottom line: Despite segments of cronyism, the dynamic process of ‘Creative Destruction’ plays a very substantial role in providing benefits to consumers.

In short, capitalism still weaves her magic despite the US government’s very visible hands.

Global Equity Markets: Signs of Exhaustion; What US Outperformance Means

Bespoke Invest has an updated table of the year-to-date and the month-to-date performances of global equity markets.

I will only show the year-to-date chart.

The month to date chart you can go directly to Bespoke here

Only 18 out of the 78 countries or 23% of the countries in Bespoke’s tally posted positive returns from April 15 to May 15 2011.

Major economies and the BRIC bourses have all been in the red. But the BRIC has underperformed the G-7.

ASEAN bourses largely outperformed most of the world.

On a year to date basis the picture changes; about half of the global equity markets are still in the black or registered positive gains.

Nevertheless the continuing weakness in the markets as a result of many political events is likely to weigh on the above standings.

Again, y-t-d the G-7 economies have outclassed the BRICs, while ASEAN bourses remain slightly above the mean.

Venezuela's Stagflation

An irony is that Venezuela whom just popped out of the recession leaped 10% in May to grab the 2^nd spot.

Venezuela’s recovery could merely be statistical considering that the country, despite being an oil exporter, has now been rationing electricity in the face of rolling brownouts.

Nationalization policies have led to a material drop in foreign investments that has contributed to such social blight.

Venezuela’s inflation at 22.9% has hardly been affecting stock price levels.

I’d say the so-called Venezuelan outperformance is a result of government’s money printing in preparation for 2012 Presidential elections.

Venezuela looks more like the movie The Curious Case of Benjamin Button. Venezuela stagflationary environment has exhibited an interesting phenomenon of a rising stock market amidst a recessionary environment and high unemployment.

As stated before, for me, the Venezuela's Chavez regime seems like a prime candidate for Zimbabwe 2.0.

Implication of the Changes in the Ratio of Emerging Market-US Equity

Yet the outperformance of the US relative to Emerging Markets should be seen from the bigger picture.

Again chart above courtesy of Bespoke.

EM bourses have largely bested US markets at the start of the recovery or since November 2008 until its peak on November 2010 (see red trend line).

Presently such trend seems to have reversed. (see blue line which forms a wedge)

I am not sure if this means that EM would start underperforming over the coming months or if this represents plain consolidation or a pause prior to the next up leg. Although I am inclined to think the latter.

Besides it’s no good news to suggest that the US outperforms the world considering that globalization has been reducing the US share contribution to the global economy. (in 1960 US share is 39%, in 2009 it was 24.23%)

This only implies that perhaps tightening of money conditions could have been taking hold outside the US, and may affect the global economy, which appears to be exhibited by current stock market performances. And this may eventually will get transmitted to the US.

One would further note that the previous market top in 2007-2008 was defined by a consolidation phase between the EM economies and US markets before the Lehman crash in October 2008 (see green oval).

So while home biased US managers see this as good news, this ain’t one for me.

Let me be clear: This isn’t a case to be strongly bearish yet. Although this should serve a yellow flag, which requires more confirmation or falsification.

MENA Uprisings: Iran Sends Flotilla To Bahrain

If there is one risk that seems to have been overlooked by the marketplace is this: a potential escalation of Middle East tensions.

The Reuters reports,

Shi'ite-ruled Iran sent a flotilla to Bahrain on Monday to show solidarity with mainly Shi'ite Muslim protesters, escalating tensions with the island kingdom that is home to the U.S. Navy's Fifth Fleet.

It was not clear when the convoy might reach Bahrain, which has a majority Shi'ite population but is ruled by a Sunni king.

Bahrain, which has cracked down on pro-democracy protesters in recent weeks, has criticised the decision to send the flotilla and accused non-Arab Iran of interfering its affairs.

Iran's English-language Press TV said 120 activists, including professors, students and clerics, were aboard the convoy, sent to condemn the killing of Bahraini protesters.

The MENA unrest has earlier spread to Bahrain from which Saudi Arabia earlier sent troops to help quash the mounting opposition.

Kuwait has likewise declared in the same article that

“Kuwait will not hesitate to defend the Kingdom of Bahrain against any danger that may threaten its security," the al-Watan daily quoted an unnamed senior Kuwaiti source as saying.”

Ruling autocracies has been linking arms in the face of growing dissent from her constituencies.

Moreover this isn’t about Christian-Muslim conflict but about Muslim inter-religious or sectarian schism. The point I would to make is for those who tunnel on the view that the world operates as religious black and white conflict, obviously this isn’t one of them.

In addition, the Bahrain episode is more of a consequence of foreign meddling on what is a local political disorder. And the meddling of Saudi Arabia has similarly triggered a counter response: Iran implicitly applies symbolical intervention by sending a flotilla.

What used to be a local problem has now gravitated to a regional predicament a risk I earlier pointed out.

We hope that this won’t turn into a full scale conflagration, because if it does, there will be much turmoil especially in the energy markets.

This is one development that requires vigil.

Ron Paul Slams IMF on Strauss Kahn

From the Right Perspective, (bold highlights mine)

US Presidential candidate Ron Paul says the arrest of IMF boss Dominique Strauss-Kahn shows why economic sovereignty and control of the money supply should not be handed over to an international body.

“These are the kind of people that are running the IMF and we want to turn the world finances and the control of the money supply to them?,” Paul rhetorically asked on FOX News Sunday. “That should awaken everybody to the fact that they ought to look into the IMF and find out why we shouldn’t be sacrificing more sovereignty to an organization like that and an individual like he was.”

US Rep. Ron Paul has referred to proposals for a global currency that would serve as substitute to the US dollar which according to the proponents would be represented by the IMF’s SDR (special drawing rights).

The fact is that the IMF’s SDR, as a global currency, has long been a fantasy for Keynesians.

As Murray Rothbard pointed out,

At best, the Keynesian Dream is a long shot. It is always possible that, not only British opposition, but also the ordinary and numerous frictions between sovereign nations will insure that the Dream will never be achieved. It would be heartening, however, if principled opposition to the Dream could also be mounted. For what the Keynesians want is no less than an internationally coordinated and controlled world-wide, paper-money inflation, a fine-tuned inflation that would proceed unchecked upon its merry way until, whoops!, it landed the entire world smack into the middle of the untold horrors of global runaway hyperinflation

Perish the thought of an IMF SDR as global currency!

Twilight Zone: Zimbabwe Considers A Gold Backed Dollar!

It’s always a reasonable advice to expect the unexpected.

Zimbabwe, whom has been the latest country to endure a stunning gut-wrenching episode of hyperinflation as shown below (previously posted here)....

….has reportedly been considering…hold your breath…a Dollar backed by GOLD!

Reports the New Zimbabwe (hat tip Bob Wenzel)

THE central bank says the country must consider adopting a gold-backed Zimbabwean dollar warning that the US greenback’s days as the world’s reserve currency are numbered.

Government ditched the Zimbabwe dollar in 2009 after it had been rendered worthless by record inflation levels and adopted multiple foreign currencies with the US dollar, the South African Rand and the Botswana being the most widely used.

Finance minister Tendai Biti says the country needs at least six months import cover and a sustainable track-record of economic growth, inflation stability and above 60 percent capacity utilisation in industry before the Zim dollar can be brought back into circulation.

However central bank chief, Dr Gideon Gono said the country should consider adopting a gold-backed currency.

“There is a need for us to begin thinking seriously and urgently about introducing a Gold-backed Zimbabwe currency which will not only stable but internationally acceptable,” he said in an interview with state media.

“We need to re-think our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way.”

Gono said the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries to leading to a resistance of the green back as a base currency.

Has this tergiversation talk of Dr. Gono, the man responsible for Zimbabwe’s hyperinflation, imply of a genuine conversion? I doubt so.

Yet, as earlier pointed out in my previous post where Steve Forbes has predicted the return of the Gold Standard in 5 years, it usually takes a calamitous event for politicians to embrace what is seen as politically repulsive.

Could Dr. Gono be the trendsetter?