Parivartan Information

Right now I’m wondering how the Chinese big wigs are feeling about the US bail-out of Fanny Mae and Freddie Mac.

The Chinese have a lot riding on the US economy. More than man others, in fact. It is of course a very significant market for so manyof its exports. As any dedicated shopper knows, it’s hard to find stuff in shops that isn’t made in China.

A dear friend of mine recently visited Shanghai on business to see some well-established suppliers. She thought it would be appropriate and pleasing to take small presents to her contacts. She did not wish to take trashy tourist unmemorabilia. But every prospect she looked at turned out to be ‘made in China’ (as was most of the unmemorabilia too).

Equally, China is heavily invested in formally ’safe’ US government and government-back securities. It’s reckoned there’s upwards of a trillion dollars invested by China in the US.

So a weak dollar is not in their interests. It makes there exports more expensive, and it devaluies their investments and holdings.

The Chinese muct therefor be just as macho about the dollar as the US authorities.

A new website has launched today bringing news and articles on Android Downloads from hundreds of sources. This Google Android website should become one of the largest blogs for the Google Android platform in a few months time.

New outfit Marlin PR is independent of the larger tech agency but is owned by Brands2Life parent company Fraser Scales Holdings.

Co-founders Giles Fraser and Sarah Scales poached Ogilvy PR account director Jenny Tod to head up a team of four at the start-up.
 
Marlin already counts Sony Professional Solutions UK as its first client, with Tod having worked on the Sony account at Ogilvy.

She and her team will focus on pitching for business in the tech, media and entertainment sectors.
 
‘We have often been approached by companies who want to benefit from Brands2Life’s style of PR but have been unable to take them on because they conflict with existing clients,’ said Scales.

‘Now, in such situations, we can point those clients towards an alternative option.’

Oil’s now around $114 after several weeks of coming down from the stratosphere. Some of this is a mirror of the stronger dollar, but some ain’t.

Crystal ball gazers (aka analysts) are still, most of them anyway, predicting that the price at the end of this year will be much higher than this. Goldman Sachs, who it must be said were one of the few to correctly pick how much the price would rise to its recent peaks,  reckon it will be $149 at year end.

News agencies are reporting that the consensus forecast is now around $125 by end 4Q 2008. A couple of months ago this looked conservative. Now it might be bold.

There is also a cogent view that the oil price could be below $100 by Christmas. It’s a volatile market subject to overreaction and over correction. But at $100 a barrel it’d still be double the early 2007 price, and would therefore still be “expensive” and in keeping with the ‘Peak Oil’ era.

Thing is that crystal ball gazers cannot pick sudden shifts in sentiment, of the type we have seen over the US, European, Australian and even Chinese economies. One (i.e. an analyst) would  have expected the dust up in Georgia, during which Western relations with Moscow got as chilly as Siberia in winter, to deliver a hefty spike in the oil price.

But it didn’t happen. The mood was too glum. Speculators had just finished unwinding positions based on stratospheric prices and weren’t inclined to jump into the market again given the cloudy conditions in their crystal balls.

So US retail sales in July fell by 0.1%, dragged down by a 2.4% fall in vehicle sales. In a world economy addicted to growth, this is bad news. We have become accustomed to steadily growly retail sales - sometimes strong growth, sometimes weak growth, but always growth.

US consumers keeping their wallets and purses in the pockets comes after the US government added $100 billion via low taxes to disposable income in the second quarter. The last set of tax rebates went out in the middle of July.

Thing is that people (i.e. analysts) were talking about decoupling of the world economy. They were arguing that China’s and India’s growth was sustain the rest of the world while the US fought off recession. Not so. Growth is slowing across Asia, because, doh, high growth in these economies is very dependent on exports.

You can see this in any nearby department store. I girlfriend of mine is heading off to China on a business trip this week. She has been shopping today for eight gifts to take to business associates. She’s not interested in nationalistic gift shop trash. But nearly everything she sees is made in China.

So now currency markets have caught the bug. We’ve seen some big changes in currency alignments over the past few weeks.

The US dollar has gained about 10% on the back of, um, hang on, isn’t it the US economy that is in the doldrums? It looks like the dollar has gained partly as a bounce back from an oversold short position. But a greater impact was a result of a sell off of the euro, which has probably been historically overvalued in recent times.

The European economy isn’t looking too flash; in fact it’s not easy to see reasons why the UK and Germany will avoid recession. The UK isn’t in the euro, of course, but it is a big player on the European scene.

The currency markets are reflecting the global creep of the impact of the credit crunch that started almost exactly a year ago.

The economic rise of India and China, and to a lessor extent, Russia and Brazil, had led some to argue that the world was no longer dependent on the US economy as the engine of world growth. Well, yes, perhaps it is not as central as it was, but it is still very important. And as any economist will tell you, what happens at the margin is critically important in determining prices.

Commodities are off the boil, thanks to the US. We watch with interest to see whether China pips the US for gold at Beijing.

Australia has long been known as the ‘Lucky Country’, sometimes with a sense of irony, sometimes because in so many areas it does not struggle with problems faced by so many other countries.

Over the past decade it has indeed been very lucky. The prices it has been getting for its mineral resources, especially but not only iron ore and coal, have been driven into the stratosphere by China’s voracious economic miracle.

A clear demonstration of the effect of this is the Australian dollar. When commodities are booming, so is the A$. It’s not far off parity with the US dollar and not far off being worth 50% of the British pound. In the 1990s, it was sometiomes around 60c and 35% respectively.

The resources boom has played havoc with the labour market in the land of Oz because the mines have been sucking in labour, at the expense of some other key, but more sedate, sectors of the economy.

Real incomes have soared, more than doubling since the early 1990s. Every home - or nearly every home - has an air conditioner and a large flat screen LCD TV. These are the fruits of the earth. (This is why some people use the ‘Lucky Country’ with a sense of irony, but I digress.)

In the past month or so, something akin to panic has set in among the political classes, with the Prime Minister warning last week that the Land Down Under may well be in for some tough times, and he evened intimated that he might have to use the R word. His Treasurer said it wouldn’t be helpful to use the R word but didn’t deny it might soon be an apt description of the state of the nation.

The consistent doom and gloom, higher interest rates and the sky high price of petrol has got to even the most insulated of Aussie consumers. Retail sales are out of bed, and everyone is now talking about official interest rate cuts sooner rather than later. Some speculate that even if the Reserve Bank cuts rates, the Commercial Banks holding the mortgages won’t cut rates to their customers because they are in worse shape than we were all led to believe.

When the Lucky Country is in trouble at a time when it can’t dig up its minerals fast enough to satisfy demand, we’re all likely to be in trouble.

There seems to be an unspoken global conspiracy that economists can predict the future. We can’t, but we’ve made a convincing case through the financial markets that we can. It’s a case that does not stand up to scrutiny.

In fact there is some research I’ve seen that shows that most economists forecasts are not only wrong, but that they are quite wide of the mark. Forecasting inflation is a particularly inaccurate pastime. And please let me know of more than two economists who saw the subprime crisis and its worldwide fallout coming.

So I approach the subject of oil prices with no confidence, but with a gut feel based on years of observing markets.

I think we’ve seen the top of the oil price for a while. It’s no longer $200 oil on the immediate horizon. It’s $100 oil. Then its down to maybe $60. Still high from the perspective of a few years ago, but welcome now.

The reason is: we are now seeing the slowdown in many of the world’s economy starting to bite and to bite quite hard. People are starting to thin seriously about oil alternatives, and about switching to smaller cars and to (shock, horror) public transport.

In the area I work in - economic development of a particular region in Australia close to a major city - we are seeing the first signs of major corporate relocation decisions being influenced by proximity to a decent-sized railway station.

All this points to lower demand. And moderately lower oil prices.

But, hey, I’m just an economist. I have no particular claim to know what the future holds than the next person.

The average person in the western world, and in many parts of the east as well, has been aware of the good times of the past 15 years through his or her home.

It has been an amazingly comforting ‘fact’ for many that their main asset - their house - has been steadily increasing in value. In some years we have even seen spectacular increases in value. We have been distracted from our annual profit and loss account - our income minus our expenditure - because all the while our main asset has been rising.

We have seen very many millionaires created by the value of their homes.

Now, perhaps, the tide has turned. We knew that, courtesy of the sub prime crisis and the general Bush-malaise, that US house prices are down by a large margin. In the past couple of months, we have had confirmation that the disease has spread.

The UK has been reeling under successive monthly falls in the price of houses. Now we see in Australia the same effect. For the first time since the 1930’s Depression, house prices in every region of the country have fallen.

This is scary territory. The whole paradigm of investment for half a generation has been to ‘get into property’ as a no lose investment. The whole paradigm of economic growth has been strongly growing retail sales, based on consumer confidence derived from ever higher valuations for the family home.

If residential property is no longer a safe bet a vital buttress underpinning consumer and investor behaviour in western economies has been brutally kicked away in less than a year.

This is uncharted territory. It is dangerous territory.

So the G8 ‘agrees’ to cut carbon emissions by 50% by 2050. They’ve also called on India and China to do the same.

I’m quite attracted to this idea. Let’s not worry about trying to get all the world’s states agreeing to a particular emission-cutting protocol yet. Let’s get the big boys to agree and then to ACT. Then the small fry can come on board, even if we need to exert some pressure.

But the way to do this is not to ask India and China to come aboard. There’s national pride at stake here. If India and China are so important - and they are - let’s invite them as full members of G8. What’s the downside? Uh, um, oh, I can’t think of one - unless it is that press photographers don’t have wide angle lens for the ‘leaders pics’.

So the plan should be - G10 agrees a global global warming protocol and implements it. It gives all other countries 5 years to sign up. If they don’t they face a ratcheting up exclusions from world trade markets.

Just do it.