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Author Archives: jf139239
Posts: 8 (archived below)
Comments: 1
Cross Post
Trade Disruption — 3D Printing
Posted on September 18, 2012 by jf139239
3D printing has some amazing and scary possibilities for the world in the near future. For example, any firm would be able to create a prototype in a short period of time, leading to quick iterative prototyping. Of course, weapons can be produced the same way–a bit scary!
I had considered all of the above when I heard about 3D printing. I failed to think through the effect it would have on international trade. An article in the FT takes it to a logical conclusion:
3D printing, which is set to change the way we think about manufacturing.
Additive manufacturing allows companies to produce locally and respond quickly to changes in demand, without holding large inventories. The advantages of flexibility and of proximity to one’s market and centres of technological excellence may then outweigh those of offshoring, and large-scale process manufacturing. These have made China the hub of global production, but its position is under threat.
Why manufacture in China if you can just hit the print button and be close to your market cutting out transportation and production delays. Wow…
Posted in Uncategorized
59 Comments
Singh Hopes to Add Wind to Flagging Indian Economy
India has long tried to protect itself from unbridled Foreign Direct Investment (FDI). They achieved this by not allowing foreign companies to own a majority stake in ventures, which forced many companies to form partnerships. The Indian Cabinet chose to start modifying this rule by allowing it in retail and aviation. Here’s a quote from the write up in the Financial Times:
The cabinet on Friday also said it was opening the door for up to 51 per cent foreign direct investment in supermarkets and department stores, though New Delhi said each individual state could decide whether or not to allow foreign-owned operators to set up shop in their regions.
India’s economy has been slowing, and Indian Prime Minister Manmohan Singh hopes an increase in FDI will spur growth.
Singh is perhaps one of the most influential individual in India’s economic history. Following its independence, the Indian government implemented a socialist economy. These policies resulted in a much slower rate of growth than nations in the Orient that embraced more open forms of capitalism–often state-run capitalism as in Japan. The weight of these policies created a crisis by 1991. Singh’s economic reforms as the Finance Minister, fostered much faster economic growth. According to the Organization for Economic Co-operation and Development, “annual growth in GDP per capita has accelerated from just 1¼ per cent in the three decades after Independence to 7½ per cent currently, a rate of growth that will double average income in a decade.”
It will be of interest to watch how this plays out both economically and politically for India and companies pursuing investment there.
Posted in Uncategorized
1 Comment
Resumption of Blogging
I have started blogging for my class on International Business and will cross-post entries.
Posted in Uncategorized
1 Comment
Quick Thoughts on The Trajectory of The Stock Market
This chart says it all about the S&P 500:
Hat tip to Barry Ritholz for constantly posting the great work of Doug Short on his blog.
This chart plays into my confirmation bias. The market almost always rallies the year of a presidential election. We have followed that path, and the rally rates to run out of steam some time later in the year. In my opinion, the market cannot escape the cumulative effects of austerity in Europe and the US. The year 1936 offers an analogy to 2012. Assuming the Mayans and other doomsayers prove wrong and we all live to see 2013, the market likely corrects.
I’m only long one stock at the moment: S (Sprint). A friend of mine introduces the alternative bullish view on his blog:
“When I pick a stock, I focus on the current and future business of the company. I look at earnings, cash flow, the balance sheet, the dividend, stock buybacks, and the earnings growth rate. I am interested in the business model and future prospects of the company.
And finally, I compare each investment choice to the available alternatives. I often find myself in complete disagreement with the top Wall Street pundits, something that has worked well for me for many years.
There are currently many stocks that are very attractive according to this method.”
Both sides of the argument presented, pick your poison.
Posted in Market
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Midterms
I have several idea for posts, including an interesting observation on the topic of inflation and deflation. However, midterms have taken over my schedule.
In the meantime, listen to an oldie but a goodie…link to youtube.
or the lyrics are here if you want to read the message.
Just in time for the political season and discussions in my BUS 9100 class.
Posted in Music
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Would You Bend Over to Pick Up a Penny?
I would not bend over to pick up a penny, nickel or dime. What’s the point? I can’t use this form of currency unless I find hundreds of them. I even dread receiving change at the store; the coins just sit in my drawer taking up space. Now, I might bend over for a quarter because quarters still possess some utility for certain services, e.g. parking meter or washing machine.
Would you bend over to pick up a penny?
In fact, you soon won’t be able to pick a penny in Canada. The Canadian government announced yesterday they no longer plan to mint their penny. Why? It costs a lot to make these coins. Australia and the UK decided long ago to phase out their equivalents of these coins.
This news story reminded me of the murky fact in my brain that the US spends more to produce most coins than their worth. How much more? According to a recent report from MSNBC, it costs more than two cents to make a penny. Minting a nickel costs 11.18 cents. These costs relate directly to the increase in costs for the metals used in the coin production: copper, nickel and zinc.
Given that these coins offer no utility and cost more than they’re worth, why is the US government still producing them for circulation?
Posted in WTF
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Too Big To Fail — Something Conservatives and Liberals Agree On
Too Big To Fail (TBTF) has become part of our language–worse part of our reality. If you don’t already know, TBTF refers to centralization of financial assets in the United States into very small number of systemically important institutions. According to the Dallas Federal Reserve, the top 10 banks account for 61% of the assets in commercial banks up from 26% just 20 years ago. The biggest and worst offenders being Citi and Bank of America, which prove the weakest bank stocks in the sector.
Oddly enough, removing the risks from TBTF banks has support from both liberals and conservatives. I realized this reading one of my favorite blogs today: Naked Capitalism. Obviously, liberals have no issue with increasing regulations on big banks to ensure they act ethically and pose no systemic risk. In fact, much of the impetus for the passage of Dodd-Frank Act came from the left.
What about conservatives? One might think conservatives oppose regulation because it interferes with the workings of a free market capitalist system. And disapprove of regulation they do! But conservatives favor “creative destruction” and uninhibited growth. Moreover, conservatives stand strong against “socializing” anything, which should include the huge losses racked up by TBTF banks.
Anyone following the moves of the Federal Reserve since the financial crisis in 2008 knows almost every program enacted has operated as a bailout for TBTF banks’ balance sheets. In essence, banks can make tons of money holding short term debt at low rates and lending long term debt to clients at a higher rate. They net the spread for profit. The Fed has ensured rates stay low for exactly this purpose, although secondary effects also aid the general economy. Remember this–the Fed’s primary clients are banks, not the government not the public. Wouldn’t all those trillions of dollars been better served going into the real economy, rather than shoring up TBTF balance sheets?
Both conservatives and liberals can agree on the reprehensibility of impediments to sustainable growth. Dallas Fed President Richard Fisher made this point very clearly in their 2011 annual report (linked above). Anyone who reads Paul Krugman’s blog, titled the Conscience of a Liberal, has familiarity with his discussions on handling “zombie” banks: the Swedish solution. This refers to Sweden’s taking over all of the bad banks they had in 1994, closing them down, recapitalizing healthy banks to ensure lending to the public and private sector. Eventually, the Swedish government privatized all the assets.
The key take away from this discussion; theoretical grounds for ending TBTF exist. I would hope that Dodd-Frank was the first of several steps trying to put an end to TBTF. Anyone have any constructive thoughts on how to end TBTF?
Posted in TBTF
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Debate on the Investment Bank Model or how to avoid moral hazard
The public resignation, via the New York Times Op Ed page, of Greg Smith reverberated through the financial world and his erstwhile firm–Goldman Sachs. His decision sounded an insight at the core of the financial industry: making money for clients vs. making money for the firm.
Opinions raged on both sides of the debate. Many cited the example as another illness found on Wall Street requiring a cure. Others said Smith merely stated the obvious Wall Street symptom–greed. I present here one of the more nuanced opinions from the Epicurean Dealmaker:
In reality, The author of the blog post discusses a topic mentioned everyday in business school: Moral Hazard. The inner workings of the modern investment banks prove opaque and impossible to value. (Some argue even banks fail to understand the risk on their own books because VaR poorly predicts true risk.) Clients, regulators and shareholders have no idea how much risk banks pose. It was so much simpler when investment banks were smaller and partnerships.
Sadly, we have learned nothing from history. Following the crash of 1929, Congress held hearings in regards to the causes of the crash and the resulting Great Depression. The findings were published in the Pecora Commission Report. Using the recommendations, the Congress passed important regulations instituting transparency and limiting the nature of investment banking.
Returning to the present, how do we fix the moral hazard in the investment banking industry? Perhaps it will fix itself. Clients may tire of being called “muppets,” realizing banks fail to provide a value added product, leaving on their own volition. Maybe the government will decide to reinstate the Glass-Steagall Act to remove the conflicting interests of commercial and investment banking.
The question I end on is: How do we return to a time when banks advised clients and took risks limited to their means (partnerships) — not shareholders and society at large?
Discuss.
Posted in Moral Hazard
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