Web Business Model: Online Coaching Or Mentorship

This is definitely one business model I’d like to be part of: Online Coaching or Mentorship.

Unfortunately I need to be popular first!

Reports the Bloomberg, (bold highlights mine)

Lots of bandwidth and $5,000 can get anyone an hour with Nobel Prize-winning economist Gary Becker.

A couple more computer clicks can also remake a tennis serve, fix a golf swing and provide tips on how to out-bluff the poker world’s top pros.

Becker, a University of Chicago professor who won the Nobel Prize in Economics in 1992, will be selling his time on ExpertInsight.com, a website offering one-to-one video chats with leaders, which opened yesterday. He’ll join people such as economics professors Jeffrey Miron of Harvard University and Laurence Kotlikoff of Boston University, “Freakonomics” co- authors Steven Levitt and Stephen Dubner, poker celebrities Patrik Antonius and Tom Dwan, and tennis coach Jeff Salzenstein.

“The idea is to bring this coaching model to everything,” said Brandon Adams, Expert Insight’s 32-year-old founder and chief executive officer.

The site’s roster blends the interests and contacts of Adams, a top poker professional who taught undergraduates in Harvard’s Department of Economics for the past eight years. Adams, the primary research assistant for Michael Lewis’s book “The Big Short,” began giving one-to-one poker lessons over the video-chat service Skype in March 2010, charging $300-$400 per hour....

Internet video chat has potential to be used for services ranging from tutoring and counseling to home repair and psychic readings. It may also help the world’s biggest celebrities interact with fans.

As I have been saying, the internet has been reshaping the way we do things.

Why Electric Vehicles Won’t Sell

It’s basic economics at work

Researchrecap explains, (bold emphasis mine)

A new survey from Deloitte shows that 78 percent of consumers in the United States would consider purchasing an electric vehicle (EV) when fuel prices reach $5.00 per gallon. The study, Gaining traction: Will consumers ride the electric vehicle wave?, surveyed 12,000 consumers globally, including more than 1,000 in the US, and finds that the higher the price of fuel, the more interested consumers are in EVs.

“Offsetting the fuel factor is the finding that the better the fuel efficiency of internal combustion engine (ICE) vehicles, the less interested consumers become in EVs,” said Craig Giffi, vice chairman, Deloitte LLP and U.S. automotive practice leader. “A total of 68 percent of consumers in the U.S. and 57 percent in China are less likely to consider an EV if they are able to find ICEs with a fuel efficiency of 50 miles per gallon.”…

More than half of U.S. consumers surveyed are not willing to pay any price premium for an EV compared to a regular car (ICE) while only 8 percent are willing to pay a price premium of more than $3,000.

Moreover, the overwhelming majority of these consumers (77 percent) expect to pay less than $30,000 net of government incentives. In Europe and China however, it becomes an even more significant challenge as the majority of consumers expect to pay less than $20,000 for an electric vehicle and more than 50 percent of consumers in these markets refuse to pay any kind of price premium for an electric vehicle.

Consumers have continually been weighing on the tradeoff between utility “better the fuel efficiency of internal combustion engine (ICE) vehicles” and prices “when fuel prices reach $5.00 per gallon”.

Currently, fuel prices have not been high enough to sway consumers towards Electric Vehicles (EV). And this has been happening in spite of US government’s interventions (via incentives).

That’s because prices determine people’s actions, as Friedrich von Hayek wrote, (bold highlights mine)

prices are signals which enable us to adapt our activities to unknown events and demands, it is evidently nonsense to believe that we can control prices. You cannot improve a signal if you do not know what it signals.

Bottom line: government intervention has failed to modify people’s behavior. Prices will.

Mark Twain’s Rational Optimism

Samuel Langhorne Clemens popularly known by his pen name Mark Twain reveals his rational optimism, in a letter birthday greeting letter to contemporary Walt Whitman.

Here is part of that letter (hat tip Matt Ridley, go to Letters of Note see the complete letter)

Transcript as follows: [bold emphasis mine]

You have lived just the seventy years which are greatest in the world's history & richest in benefit & advancement to its peoples. These seventy years have done much more to widen the interval between man & the other animals than was accomplished by any five centuries which preceded them.

What great births you have witnessed! The steam press, the steamship, the steel ship, the railroad, the perfected cotton-gin, the telegraph, the phonograph, the photograph, photo-gravure, the electrotype, the gaslight, the electric light, the sewing machine, & the amazing, infinitely varied & innumerable products of coal tar, those latest & strangest marvels of a marvelous age. And you have seen even greater births than these; for you have seen the application of anesthesia to surgery-practice, whereby the ancient dominion of pain, which began with the first created life, came to an end in this earth forever; you have seen the slave set free, you have seen the monarchy banished from France, & reduced in England to a machine which makes an imposing show of diligence & attention to business, but isn't connected with the works. Yes, you have indeed seen much — but tarry yet a while, for the greatest is yet to come. Wait thirty years, & then look out over the earth! You shall see marvels upon marvels added to these whose nativity you have witnessed; & conspicuous above them you shall see their formidable Result — Man at almost his full stature at last! — & still growing, visibly growing while you look.

Read the rest here

Well, Mark Twain was right. Such marvels has been brought about by capitalism.

Knowledge Revolution: Internet and Freedom

I’ve been writing about how the internet/web has functioned (and will continue to function) as a critical instrument for the widespread dissemination of the principles of freedom based on what I call the Hayekian Knowledge revolution platform—characterized by a decentralized-horizontal flow of information.

You can read my earlier explanations here or here.

And in realizing that the web has been undermining the current political order, governments around the world has, intuitively, resorted to counterbalancing these evolving spontaneous order by attempting to regulate the internet or by imposing censorship. A good example are reports from wikileaks (such as this and this) that has exposed many covert government activities.

Well my observations seem to be getting substantial validations.

Here is the Economist, (bold emphasis mine)

THE number of people with access to the internet has more than doubled in the past five years to over two billion. Many governments have responded with regulation and repression, according to a report published on April 18th by Freedom House, which assigns countries an internet freedom score. Nine of the 15 countries that the Washington-based think-tank assessed in 2009 fared worse this year, among them Iran, Tunisia and China. On the plus side, citizens are growing increasingly adept at sidestepping these threats to their internet freedoms, and the use of social media did much to galvanise political opposition across the Arab world in recent months. Indeed web-users in some countries, such as Georgia and Estonia, have more freedom now than they did two years ago.

Some great charts

The massive growth of Internet Users (Freedom House)

Social media as a widely used application (Internet world stats)

Index of Internet freedom: 37 country score of internet freedom (0 Best, 100 Worst)

A green-colored bar represents a status of “Free,” a yellow-colored one, the status of “Partly Free,” and a purple-colored one, the status of “Not Free” on the Freedom of the Net Index. (Freedom House)

More internet freedom versus less internet freedom (Freedom House)

How Asia has fared.(Freedom House)

Freedom House identifies the typical government’s countermeasures:

(From Freedom House, bold emphasis original)

Key Trends

* Explosion in social-media use met with censorship: In response to the growing popularity of internet-based applications like Facebook, YouTube, and Twitter, many governments have started targeting the new platforms as part of their censorship strategies. In 12 of the 37 countries examined, the authorities consistently or temporarily imposed total bans on these services or their equivalents.

* Bloggers and ordinary users face arrest: Bloggers, online journalists, and human rights activists, as well as ordinary people, increasingly face arrest and imprisonment for their online writings. In 23 of the 37 countries, including several democratic states, at least one blogger or internet user was detained because of online communications.

* Cyberattacks against regime critics intensifying: Governments and their sympathizers are increasingly using technical attacks to disrupt activists’ online networks, eavesdrop on their communications, and cripple their websites. Such attacks were reported in at least 12 of the 37 countries covered.

* Politically motivated censorship and content manipulation growing: A total of 15 of the 37 countries examined were found to engage in substantial online blocking of politically relevant content. In these countries, website blocks are not sporadic, but rather the result of an apparent national policy to restrict users’ access to information, including the websites of independent news outlets and human rights groups.

* Governments exploit centralized internet infrastructure to limit access: Centralized government control over a country’s connection to international internet traffic poses a significant threat to free online expression, particularly at times of political turmoil. In 12 of the 37 countries examined, the authorities used their control over infrastructure to limit widespread access to politically and socially controversial content, and in extreme cases, cut off access to the internet entirely.

The battle rages.

Leaked Secret Memos Reveal That The Iraq War Has Been Mostly About Oil

The Iraq War has NOT been about oil?

Well, highly confidential memos leaked to the public appear to expose on such duplicity.

From The Independent (hat tip Bob Wenzel) [bold emphasis mine]

Plans to exploit Iraq's oil reserves were discussed by government ministers and the world's largest oil companies the year before Britain took a leading role in invading Iraq, government documents show.

The papers, revealed here for the first time, raise new questions over Britain's involvement in the war, which had divided Tony Blair's cabinet and was voted through only after his claims that Saddam Hussein had weapons of mass destruction.

The minutes of a series of meetings between ministers and senior oil executives are at odds with the public denials of self-interest from oil companies and Western governments at the time.

The documents were not offered as evidence in the ongoing Chilcot Inquiry into the UK's involvement in the Iraq war. In March 2003, just before Britain went to war, Shell denounced reports that it had held talks with Downing Street about Iraqi oil as "highly inaccurate". BP denied that it had any "strategic interest" in Iraq, while Tony Blair described "the oil conspiracy theory" as "the most absurd".

But documents from October and November the previous year paint a very different picture.

Five months before the March 2003 invasion, Baroness Symons, then the Trade Minister, told BP that the Government believed British energy firms should be given a share of Iraq's enormous oil and gas reserves as a reward for Tony Blair's military commitment to US plans for regime change.

Read the rest here

Comments:

What government says in public and what government does are almost always different.

Here is an example of the public choice theory at work where well-entrenched and powerful vested interest groups shape government policies.

Also, corporatism or crony capitalist agendas extrapolate into imperial (foreign) policies advertised in the name of national security, but covertly operates for the benefit of the politically favored groups. In short, “national interests” equals corporate interests.

Lastly, the beauty of the internet is to act as a neutralizing agent against clandestine operations by governments. Either the internet will reduce the incidences of government’s secret operations or governments will wage a war of control against the free flowing information provided by the internet via censorship. We see more signs of the latter than the former.

Cartoon of the Day: Free Lunch Politics

Here’s a nice parody of the political rhetoric of free lunches. [Hat tip Cato’s Dan Mitchell.]

This applies even to Philippine politics.

Just replace President Obama with local politicians who dangle free stuffs for votes and we get the same message.

S&P Cuts U.S. Ratings To Negative: A Prelude To The Return Of The Bond Vigilantes?

I occasionally come across some myopic commentators who ask “where are the bond vigilantes?”

Bond vigilante are investors, who according to Wikipedia.org, "protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields". The term “Bond Vigilante” was coined in 1984 by economist Ed Yardeni.

The implication is—the absence of bond vigilantes seem to justify reckless government ‘spending’ policies, which for mainstream ideologues, imposes little adverse side effects on the economy or on the markets.

Yet this view hardly incorporates the impact of the massive interventionism applied by the world governments on the international bond markets, as well as the impact of financial globalization.

For them, because interest rates remain low, then governments are justified to keep running a spending binge.

Anyway the same camp, characterized by their reverence to government interventions on the market to thwart ‘deflation’ had earlier been insisting about “where is inflation?”

Well, the downgrade on the outlook of US debt by the credit rating agency S & P 500 seem to presage the return of the bond vigilantes.

The Bloomberg reports, (bold emphasis mine)

Standard & Poor’s put a “negative” outlook on the U.S. AAA credit rating, citing rising budget deficits and debt.

“We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said in a report today. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

At the end of the day, what is unsustainable won’t last.

Fear Of Gold Shortage Prompts US School To Take Physical Delivery

The University of Texas has reportedly taken physical delivery of gold out fear of shortage.

From Bloomberg,

Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $987 million on April 15, now stored in a bank warehouse in New York…

The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass…

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said April 15 in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”

This represents increasing signs where mainstream institutions are seeking refuge from (world) central bank’s policy of inflationism.

Understanding China’s Bubble Cycles

[note: This post as well as the next 2 below, are unedited. Since I’m in a hurry, sorry for the absence of quotes for my usual Sunday headings.]

For this week, profit taking enveloped equity markets of most of Asia.

Despite the cyclical correction, Asian equity markets remain mostly on the upside led by China and major ASEAN bourses as seen from December 28^th of 2010.

The outperformance of China’s Shanghai index comes amidst her governments repeated attempts to quell her internal demons-a brewing bubble cycle.

Proof of this bubble cycle has been the 64 million vacant apartments[1] as a result of centrally planned building of 10 new cities every year just to attain statistical economic growth.

China recently even imposed price controls[2] as panacea to contain this bubble. This would only add to the distortions brought about by these myriad policies.

US credit rating agency Fitch Rating threatened to cut China’s debt rating for the first time in 12 years with the prospects of a deterioration of loans “compounded by growth in off-balance-sheet credit[3]”

In realization of homebound restraints, Chinese companies have embarked on an unprecedented scale of borrowing, more than five times the amount last year, from the international bond markets, which as the Financial Times reports, represents “a trend driven by property developers starved of credit by state-owned banks”[4].

Chart courtesy of Bloomberg.com

The Shanghai index, despite a sluggish 2010, appears poised to make a substantial breakout from what appears to be 2-year consolidation period.

The blue channel lines reveal of a chart formation called a Pennant, a trend continuing pattern. Since the Shanghai appears to be testing the resistance level, the 2 years+ chart seems to suggest that the momentum for the breakout is imminent.

Bubble cycles represent an unsustainable political process.

64 million homes do not automatically mean a bubble bust. Imbalances may continue for as long as China’s government continues to inflate, and for as long as, rising price levels have not reached the critical point which undermines the feasibility of most of these existing projects.

Chart courtesy of US Global Funds[5]

As one would note, given the administrative controls applied by the Chinese government, which has partly affected official statistics (as shown above), Chinese companies appear to circumvent these by tapping the international bond markets.

And such process is likely to get magnified by the requirement where Chinese banks would need to raise 860 billion yuan ($131 billion) of supplementary capital over the next years just to comply with stricter regulations[6].

And further proof of this inflationism is that the China has now accumulated more than $3 trillion of foreign exchange reserves[7]. This implies that if China refuses to appreciate her currency then this huge stash of excess reserves would only translate to an acceleration of domestic inflation process.

As you can see, no amount of policy controls will impede the law of economics from revealing the state of acquired imbalances. Eventually, quasi booms will end up in devastating busts.

The bottom line is that the “whack a mole” strategy employed by the Chinese government is most likely to fail and that China’s Shanghai Index could be manifesting signs of leakages from the ongoing boom in circulation credit in China and in the international realm.

All these represent parts of the jigsaw puzzles falling into place which we know as the bubble cycle.

---

[1] See China' Potemkin Cities and Malls, April 11, 2011

[2] See War on Economics: China Imposes Price Controls! April 16, 2011

[3] Bloomberg.com China’s Record Bank Lending May Spur Fitch Rating Downgrade, April 13, 2011

[4] Financial Times Chinese companies go on global bond spree, April 12, 2011

[5] Holmes, Frank Will China's Economy Overheat?, US Global Investors April 15, 2011

[6] Bloomberg.com, China Banks Said to Need $131 Billion in Stock Over 6 Years April 14, 2011

[7] Bloomberg.com China Reserves Exceed $3 Trillion as Wen Resists Yuan Pressure, April 15, 2011

Philippine Phisix: Ongoing Rotational Process Amidst Overbought Conditions

For the week, the Philippine Phisix had been one of a few bourses that had escaped the interim cyclical correction. The bullish momentum appears to have prevailed, which eked out marginal gains.

On a year to date basis, the Phisix grew by 1.2% as of Friday, coming off this week’s .25% advance. Remember that in early 2011, the Phisix was down by about 15%.

Parsing on market internal activities, despite this week’s marginal gains, profit taking appears to have taken hold as decliners led advancers by a modest margin.

Yet the market leadership in the Philippine Stock Exchange (PSE) has clearly shown an ongoing process of rotation.

Two weeks ago the service sector became the market’s darling. Last week, the property sector grabbed the spotlight. This week, market leadership had been shared by the mining & oil and the holding sector.

The holding sector had been lifted by the material gains of the peripheral components: property, energy and mining holding company DM Consunji [DMC +9.14%], property banking and agricultural Filinvest Development Corporation [FDC +7.06%] and property, water, road and infrastructure based Metro Pacific Investment [MPI +3.93%].

Meanwhile, the mining sector has been singlehandedly buoyed by Lepanto Consolidated (LC +15.7%, LCB +17.54%).

On the losing side, the Industrial sector posted hefty losses (-2.45%) mostly due to energy company San Miguel Corporation [SMC-11.56%] which voluntarily suspended trading its shares as the company undertakes a fund raising program via sale of convertible bonds and shares[1].

San Miguel’s loss had been accompanied by electric utility Meralco [MER] which likewise shed 4.61% over the week.

Daily Trades As Sentiment Guidepost

One would note that even when the Phisix underwent a correction phase (blue vertical line) during November of 2010, the number of daily trades remained significantly above the levels during the first half of 2010.

This only implies that the correction then had NOT been a general phenomenon, and that there had been significant activities over the broader markets.

During full blown bear markets, the fall in equity values are transmitted to trading activities which likewise would exhibit substantial declines, as the public losses interest on “speculative” activities. So a feedback loop mechanism occurs, falling equity prices equate to falling trades and falling trades amplifies the price declines.

The reverse is true in bullmarkets: Higher prices translate to more trading activities and more trading activities are likely to magnify gains of equity prices. I say “likely” because there are exceptions to the rules.

The point is daily trades function as indicators of the sentiment of trading participants or of the general market.

Resolving The Overbought Levels of the Phisix

The Phisix seen from a technical viewpoint is still largely overbought.

Almost all indicators, I use, suggest that this has been so: The Phisix trades way above the 50 day Moving Averages (MA) shown in the main window, the Relative Strength Index (RSI), MACD (moving average convergence diverge) and the Full stochastic (Full STO) shows of overextended levels.

So it would not be a surprise for us to see some profit taking activities that may take hold.

But the technically overbought levels of the Phisix might also be resolved through a consolidation phase. This means the Phisix could go rangebound but the overbought levels will be resolved by specific issue related actions, as expounded last week[2].

And this week’s actions appear to reflect on these dynamics. Issues that had been overbought were sold, while issues that have lagged became market darlings. This defines the rotational dynamics.

Obviously the general trend determines the specific issue performance, but the actions are dissimilar (degree of movements) and spread through time (shown by diverse intervals—some issues take long before market attention shifts on them or some are inherently volatile or etc.).

But again if any hiatus surfaces, then this should likely be ephemeral, which should present as buying opportunities for traders, punters or long term investors.

Otherwise, attempting to catch short term waves might lead to missed opportunities.

As Publius Ovidius Naso the Roman Poet popularly known as Ovid once wrote,

“Chance is always powerful. Let your hook always be cast; in the pool where you least expect it, there will be fish.”

---

[1] Finance Asia San Miguel gives price guidance for $850 million fundraising, April 14, 2011

[2] See Phisix-Philippine Peso Back In Rhythm, April 10, 2011

The Philippine Stock Exchange and Financial Globalization

Last week’s spike in the prices of the Philippine Stock Exchange [PSE], the publicly listed monopoly franchise that operates the domestic stock exchange and allied services, brought to light some of the ongoing developments of the world stock markets.

The PSE Makes A Big Move

First, I’ll deal with the Philippine Stock Exchange.

The PSE flew on the account of the 1:1 stock dividend[1] which the company declared last week. (Disclosure: I have long been a shareholder of PSE)

The chart formations presage many bullish signs in the PSE price actions.

One, there is the bullish reverse head and shoulders pattern by the blue descending line which signify as the neckline. And secondly, an uptrend channel (marked by the green lines) over the past two years, signifying a mid term trend.

The recent breakout only highlights of the fulfilment to these patterns (of course subject to the buoyancy of the overall market sentiment)

In addition, the PSE reached over php 700 per share when the Phisix topped at 3,800 in 2007. Today, the Phisix trades at over 4,200.

Aside from being a monopoly, the kismet of PSE depends on the general actions of the Phisix and of the broader domestic market. Thus, higher Phisix should equally be reflected on the share values of the PSE.

So for me, the PSE functions like an index fund or the equivalent of an Exchange Traded Fund (ETF) representative of the Phisix. Thus, for as long as the Phisix is headed higher so should the PSE. It’s almost like a no-brainer investment theme.

And that’s the domestic perspective.

Mergers & Acquisition, Collaboration and IPOs

Next, I have written about the prospects of consolidation or integration of global stock markets.

In 2007 I wrote[2],

With the revolutionary advances in the field of communications and information technology-the advent of on-line electronic trading platforms makes it possible for real-time electronic transactions regardless of the geographical distance.

Grounded on this premise, the major exchanges appears to be in a rush to integrate financial services, to diversify and expand their market coverage, reduce transaction (bookkeeping, clearing and settlement) costs by achieving the economies of scale, to eliminate further inefficiencies by way of human intervention, provide for financial depth by attracting global investors (to augment the demand side), traders and listing companies (to increase supply side), to improve on liquidity by easily matching buyers and sellers, and finally, adapt to the ongoing changes in marketplace by being accessible to the growing significance of institutional investors [pension funds, hedge funds, mutual funds and insurance companies] as compared to retail investors in the past.

With the global trade and economic structure presently favoring Asia, as evidenced by its exploding foreign exchange reserves and rapidly rising per capita and middle class, its largely fragmented and underdeveloped financial markets makes it a potential ground for an explosive expansion.

Apparently events are validating my earlier observations anew as many stock markets around the world are in the process of consolidation.

One channel is by mergers & acquisitions.

Though much to my dismay, the Australian government recently blocked Singapore’s Stock Exchange (SGX; SIN: S68) takeover bid of the Australia Stock Exchange (ASX:ASX) on absurd nationalist grounds[3].

If the objective is to reduce transaction costs, maximize on the economies of scale, expand market access and supply, and increase market efficiency by globalizing the channels of savings and investments then upholding “national interests” essentially defeats such ideals.

If the ASX rejects SGX out of financial or economic reasons, then there won’t be any opposition from me, but for politicians to pretend to know better of the interests of the stockholders or of the nation represents repression.

Besides, despite the setback, there has been a raft of ongoing mergers in the pipeline.

There has been an ongoing deal for a merger of the New York Stock Exchange (NYSE) with Deutsche Börse of Germany, where U.S.-based Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. have also been waiting on the wings and have been interested to buy into the NYSE[4].

In addition, the London Stock Exchange Group PLC's have also proposed a takeover of TMX Group Inc owner of Toronto Stock Exchange.

And as world markets continue to recover, we should expect mergers & acquisitions deals to pick up steam.

Chart from Allen & Overy[5]

And such deals will include stock market M & A.

Well the integration process doesn’t stop with mergers.

Stock exchanges have also been rushing to push for alliances and collaboration.

One good example is the recent ASEAN deal which promotes the regional equity markets. The aim here is to provide link gateways to the region’s exchanges[6] in line with plan to promote free capital movements within the region, or the 2015 ASEAN Economic Community.

Individual bourses have been in play too.

The London Stock Exchange is likewise reported to be negotiating with Bursa Malaysia for a partnership[7]. Hong Kong has reportedly been open to accept partnerships. And so with Taiwan, who seeks regional alliances via Exchange Traded Funds[8].

And as global stock markets respond to inflationism and financial globalization, we should expect more Initial Public Offerings (IPO) to surge too.

Asia has so far led IPO deals into the recovery.

In the 2011 Global IPO trends outlook, financial services company Ernst & Young observes[9], (chart by Ernst & Young) [bold highlights mine]

In 2011, global IPO markets continue to recover and gain momentum. Global investors seeking to capitalize on the emerging markets growth story have been fueling stock market rallies and new listings world-wide. The lack of exit routes, shortage of capital-raising opportunities, and numerous IPO postponements since 2007 have led to a growing IPO pipeline worldwide. Many key drivers of 2011 global IPO markets reflect a continuation of 2010’s key trends including emerging markets growth, state privatizations, multinational company spin-offs, and fast-growth companies in the energy, industrial, materials and technology sectors.

Despite market volatility exacerbated by the Eurozone sovereign debt crisis, in 2010, global IPO fundraising gradually recovered to pre-crisis levels, buoyed in particular by a record-breaking fourth quarter. In 2010, emerging market issuers, particularly in China, maintained their fundraising leadership, driven by rapid economic growth, market liquidity, and foreign fund inflows.

Again we see a feedback mechanism where rising stock values have fuelled global IPOs and where IPOs tend to magnify gains in global equity markets.

As stock markets continue to advance these should be reflected in IPOs and in mergers & acquisition activities, as well as deals for free capital movement via alliances and other forms of collaboration.

All these simply represent the deepening thrust towards financial globalization.

And it’s quite obvious that the PSE will be a part of this deal making process, as already evidenced by the ASEAN collaboration.

I think more deals will come in the future that should involve the PSE. But all these are anchored upon the whereabouts of the current state of the bubble cycle.

So yes for as long as the boom phase of this cycle persists, I remain mostly bullish on global equity platform providers. And this includes the PSE.

---

[1] pse.com.ph Philippine Stock Exchange: Declaration of 100% Stock Dividends April 13, 2011 AN092-002557

[2] See Unifying Global Stock Markets; Asia Looks Next!, January 14, 2007

[3] BBC.co.uk Australia rejects Singapore's bid for stock exchange, April 8, 2011

[4] Wall Street Journal Asia, Stock-Exchange Mergers Fan Nationalism, April 15, 2011

[5] Allen & Overy, The Allen & Overy M&A Index Q1 2011

[6] See ASEAN Integration: Regional Stock Exchange Website Launched, April 12, 2011

[7] Dailymail.co.uk TAKING STOCK: LSE in scramble for partners as mergers boost competition, April 16, 2011

[8] Reuters.com, Taiwan exchange aims alliances, no M&A plans, April 16, 2011

[9] Ernst & Young Global IPO trends 2011

World Economic Forum on Global Network Readiness (Info Tech) and Global Competitiveness

The World Economic Forum (WEF) recently published two significant reports: one on Information Technology (IT), particularly on the ranking of Network Readiness, and the other, on Global Competitiveness.

In terms of the IT world, according to the WEF, Network Readiness Index (NRI) “mapped out the enabling factors driving networked readiness, which is the capacity of countries to fully benefit from new technologies in their competitiveness strategies and their citizens’ daily lives”.

The index, according to the WEF, has further “allowed private and public stakeholders to monitor progress for an ever-increasing number of economies all over the globe, as well as to identify competitive strengths and weaknesses in national networked readiness landscapes.”

A partial view of the global ranking of the NRI can be found below

The Philippines ranks 86^th in Network Readiness.

Read the report here

The second is the Global Competitiveness report.

A partial view of the WEF Global Competitiveness table shown below.

One would notice that the order of rankings of competitiveness seem to parallel that of the NRI.

The Philippines ranks 85^th here.

In measuring competitiveness based on the WEF methodology, technology readiness is just one of the 12 pillars.

In my view, as the world economy transitions into knowledge-based, and away from the industrial era configuration, competitiveness will greatly depend on the use of technology, which should bring about greater business process and organizational efficiency via increased specialization and on the tapping of niche markets.

Read the report here.

The Global Competitiveness Report 2010-2011

Gold As Safehaven From Currency Devaluation: Belarus Edition

From Reuters.com (hat tip Bob Wenzel)

Belarus' central bank has stopped selling gold to local retail customers for Belarussian roubles BYR=, it said on Friday, after demand for precious metals soared due to expectations of a currency devaluation.

The bank did not explain its decision.

The explanation:

This represents an instinctive response by Belarussians against the expectation of their government’s debauchery of money.

Such action can be read as “flight to real values”.

War on Economics: China Imposes Price Controls!

The war on economics has begun.

After four interest rate increase, and having failed to curtail inflation, China has started to impose price controls!

From the Financial Times, (bold highlights mine)

China has imposed strict price controls on basic consumer items and is expected to allow faster appreciation of its currency in the coming months after annual inflation in the country reached its highest level in nearly three years in March.

In a speech this week to the governing State Council, Chinese Premier Wen Jiabao said Beijing would, along with other policy measures, “further improve the yuan exchange rate mechanism and increase yuan exchange rate flexibility to eliminate inflationary monetary conditions”...

The price department of China’s powerful state planning agency – the National Development and Reform Commission – met earlier this month with 17 industry associations and ordered them to delay or cancel planned price increases.

The quasi-government industry associations included those overseeing agriculture, pharmaceuticals, fisheries, home appliances, cosmetics, meat, vegetables and many other basic consumer items.

In the past week or so the NDRC has also directly ordered flour and cooking oil producers to delay price increases, according to state media reports, and has even applied price controls to large global groups operating in China, such as Unilever

Price controls, which implies limits on production (yes, who will sell at a loss?, Who will work for free???), will only aggravate shortages rather than solve the problem.

From Wikipedia.org

As Wikipedia explains

Suppliers find they can't charge what they had been. As a result, some suppliers drop out of the market. This reduces supply. Meanwhile, consumers find they can now buy the product for less, so quantity demanded increases. These two actions cause quantity demanded to exceed quantity supplied, which causes a shortage—unless rationing or other consumption controls are enforced.

This serves as a politically convenient short-term approach but nonetheless a foolish one because it defies basic economics that comes nasty repercussions (rationing, long lines, more political instability).

The Romans tried it, US President Nixon tried it and many political authorities spanning 4 centuries tried it but all of them failed. Venezuela’s Hugo Chavez has also recently implemented this but has even worsened inflation and shortages.

And these have been so predictable.

First politicians create inflation by debasing the currency.

Next, politicians blame the market for self inflicted ills, thereby, superficially react to such imbalances by imposing price controls which eventually backfires.

As the great Ludwig von Mises wrote,

those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation — the rise in prices — are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.

The policy of price control is where George Santayana’s damning admonition...“Those who cannot remember the past are condemned to repeat it”...reverberates.

World Bank Blames Higher Food Prices on Everything Else But Central Bank Policies

World Bank says elevated food prices are driving many people to poverty.

From the World Bank’s press release

Driven in part by higher fuel costs connected to events in the Middle East and North Africa, global food prices are 36 percent above their levels a year ago and remain volatile, pushing people deeper into poverty, according to new World Bank Group numbers released today.

“More poor people are suffering and more people could become poor because of high and volatile food prices,” said World Bank Group President Robert B. Zoellick. “We have to put food first and protect the poor and vulnerable, who spend most of their money on food.”

According to the latest edition of the World Bank’s Food Price Watch, a further 10 percent increase in global prices could drive an additional 10 million people below the $1.25 extreme poverty line. A 30 percent price hike could lead to 34 million more poor. This is in addition to the 44 million people who have been driven into poverty since last June as a result of the spikes. The World Bank estimates there are about 1.2 billion people living below the poverty line of US$1.25 a day.

The World Bank’s food price index, which measures global prices, is 36 percent above its level a year earlier and remains close to its 2008 peak. Key increases compared to a year ago include maize (74 percent), wheat (69 percent), soybeans (36 percent) and sugar (21 percent), although rice prices have been stable. In many countries, vegetables, meats, fruits and cooking oil continued to rise with potentially adverse nutritional consequences for the poor.

Aside from high fuel costs, the World Bank blames higher food prices on other factors as the weather.

Food prices have soared due to severe weather events in key grain exporting countries, export restrictions, the increasing use for biofuel production, and low global stocks. The food price hike is also linked to surging fuel prices -- crude oil increased 21 percent in the first quarter of 2011as a result of unrest in the Middle East and North Africa.

chart from World Bank’s Food Price Watch "Correlation isn't causation"

The World Bank isn’t being forthright.

Since agricultural products have been the least globalized this means that any localized imbalances should translate to local and not to higher global prices.

Say a drought happens in country A, then A suffers higher food prices (and possibly some trading partners who depend on A for specific agri or food based products) but not the world and certainly not most of the commodities.

Furthermore, if price signals work in the domestic markets then such imbalances should translate to an anomaly or an ephemeral event and not sustained price increases.

Alternatively, general price increases in commodity prices won’t happen if the imbalance engendered have been caused mainly by non-monetary factors. That's because higher spending in some areas will be offset by lower spending in others. Only central bank inflationism can bring about generalized price increases.

Obviously, like almost all governments, all the blame will fall on the weather, corporate greed, Middle East crisis, fuel prices, and etc… but never on the inflationism applied by central banks. (The Bank of Japan is an exception in admitting monetary policies as responsible for food price hikes, but they have been responsible for inflationism too)

The World Bank mentions ‘exports restrictions’ (which deserves applause) but keeps mum on who has instituted "increased biofuel production". This only implies that distortive administrative policies (subsidies, tariffs, price controls et. al.) have partly been responsible (as aggravating factors).

All these “anything-but-the-government/central bank-to-blame” appears to be part of the public conditioning for the next step—massive price controls.

US Budget Debate: The Path Towards “Running Out of People’s Money”

It is tax deadline day today, which makes a good day to deal with some du jour tax related issues.

In the US, there has been ‘fierce’ ongoing budget- budget deficit cutting debate which has apparently been used as a staging point for the 2012 Presidential elections.

The Wall Street Journal has this budget cutting table showing the Ryan-Obama square-off.

Given these, Professor Walter E. Williams, has a timely and apropos article, where he makes an assumption that considering President Obama’s “class warfare-soak the rich” rhetoric, the US government appropriates

ALL earnings of the “rich” income group $250K and above ($1.4 trillion) +

Fortune 500 corporate profits ($400 billion) +

the assets of US Forbes 400 billionaires ($1.3 trillion) =

The $3.1 trillion won’t be enough to pay for the President proposed $3.7 trillion budget for 2012.

The Business Insider has a breakdown of these proposed budget

Professor Williams writes, (bold highlights mine)

Politicians, news media people and leftists in general entertain what economists call a zero elasticity view of the world. That's just fancy economic jargon for a view that government can impose a tax and people will behave after the tax just as they behaved before the tax, and the only change is more government revenue. One example of that vision, at the state and local levels of government, is the disappointing results of confiscatory tobacco taxes. Confiscatory tobacco taxes have often led to less state and local revenue because those taxes encouraged smuggling.

Similarly, when government taxes profits, corporations report fewer profits and greater costs. When individuals face higher income taxes, they report less income, buy tax shelters and hide their money. It's not just rich people who try to avoid taxes, but all of us – liberals, conservatives and libertarians.

What's the evidence? Federal tax collections have been between 15 and 20 percent of the nation's Gross Domestic Product every year since 1960. However, between 1960 and today, the top marginal tax rate has varied between 91 percent and 35 percent. That means whether taxes are high or low, people make adjustments in their economic behavior so as to keep the government tax take at 15 to 20 percent of the GDP. Differences in tax rates have a far greater impact on economic growth than federal revenues.

So far as Congress' ability to prey on the rich, we must keep in mind that rich people didn't become rich by being stupid.

That’s why former UK Prime Minister Margaret Thatcher once said in a TV interview (which became a famous quote-bold highlights mine)

Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they're now trying to control everything by other means. They're progressively reducing the choice available to ordinary people.

Political interests and ambitions masquerading as noble intentions eventually will get unraveled. In short, it’s all about economics—what is unsustainable economically won’t last.

So the next step will be for US politicians to go for budget plugging actions. All accrued these actions will impact financial markets and the US and global economy.

Greece Default Risk At New Record, No Contagion

The default risk of Greece, represented by the Credit Default Swaps (CDS), has just traded at new record highs.

The elegant chart and subsequent table below from Bespoke Invest.

With the current surge, Greece has now supplanted Venezuela as the riskiest nation with the likelihood of a default, as shown below.

Additional comments

1. The credit risk table shows that it has been a bipolar world. Emerging markets have mostly been down (diminishing perception of credit risks), since December 31, 2009, while developed economies have been up (higher credit risks mostly from the after effect of the 2008 crisis).

2. The Greece episode which used to haunt the world markets (in 2010) appears “contained” or has become uncorrelated today.

(from stockcharts.com) Move along, nothing to see here

So far the Euro, the Europe’s Stoxx 50 (Stox50) and major global equity index (DJW) has virtually ignored the Greece rumpus unlike in 2010.

The lessons:

This highlights the dynamic where:

Past performance do not guarantee future outcome.

Markets learn to discount risks.

Global central bank’s flooding of money has so far temporarily masked whatever credit woes that have plagued the PIIGS.

It’s a complex market with variable interplaying factors. Oversimplification leads to misdiagnosis