Frankness From The ECB

In an interview with the BBC, the head of the European Central Bank Jean-Claude Trichet warns that there is 'an ongoing, very significant market correction.' In the BCC, Mr Trichet has compared 'recent rises in energy and food prices to the 1970s oil shock.'

Europe is in a tricky spot right now having to deal with a slow-down in the US, credit problems that have infected European banks, increases in commodity prices and a strong Euro all which are creating headwinds for the EU.

Source:
'ECB head: Credit crunch 'ongoing'', interview by Robert Peston, BCC
'Jean Claude Trichet warns of 'very significant market correction' , by Miles Costello, FT Online

A Play On League Tables

From a website call Here Is The City, a little play on the league tables that the financial industry uses to measure each other. The premise of the table was to look at the total credit losses firms have written down per banking employee.

Below is a graphic representation of the losses per employee.

Source:
'An Incredible League Table - The Credit Crunch In Context', Hereisthecity.com

End Of The America Empire

From the May 12th Newsweek, there was an article adapted from 'The Post-American World' a book by Fareed Zakaria. It was a rather large article, but well worth reading. One may not agree with every point Mr. Zakaria makes but it does get one thinking about how the world will change in the century that has just started.

Below are a couple of passages of interest:

'Look around. The world's tallest building is in Taipei, and will soon be in Dubai. Its largest publicly traded company is in Beijing. Its biggest refinery is being constructed in India. Its largest passenger airplane is built in Europe. The largest investment fund on the planet is in Abu Dhabi; the biggest movie industry is Bollywood, not Hollywood. Once quintessentially American icons have been usurped by the natives. The largest Ferris wheel is in Singapore. The largest casino is in Macao, which overtook Las Vegas in gambling revenues last year. America no longer dominates even its favorite sport, shopping. The Mall of America in Minnesota once boasted that it was the largest shopping mall in the world. Today it wouldn't make the top ten. In the most recent rankings, only two of the world's ten richest people are American. These lists are arbitrary and a bit silly, but consider that only ten years ago, the United States would have serenely topped almost every one of these categories.'

'These factoids reflect a seismic shift in power and attitudes. It is one that I sense when I travel around the world. In America, we are still debating the nature and extent of anti-Americanism. One side says that the problem is real and worrying and that we must woo the world back. The other says this is the inevitable price of power and that many of these countries are envious—and vaguely French—so we can safely ignore their griping. But while we argue over why they hate us, "they" have moved on, and are now far more interested in other, more dynamic parts of the globe. The world has shifted from anti-Americanism to post-Americanism.'

'We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America's superpower status in every realm has been largely unchallenged—something that's never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest.'

'At the military and political level, we still live in a unipolar world. But along every other dimension—industrial, financial, social, cultural—the distribution of power is shifting, moving away from American dominance. In terms of war and peace, economics and business, ideas and art, this will produce a landscape that is quite different from the one we have lived in until now—one defined and directed from many places and by many peoples.'

'The underlying reality across the globe is of enormous vitality. For the first time ever, most countries around the world are practicing sensible economics. Consider inflation. Over the past 20 years hyperinflation, a problem that used to bedevil large swaths of the world from Turkey to Brazil to Indonesia, has largely vanished, tamed by successful fiscal and monetary policies. The results are clear and stunning. The share of people living on $1 a day has plummeted from 40 percent in 1981 to 18 percent in 2004 and is estimated to drop to 12 percent by 2015. Poverty is falling in countries that house 80 percent of the world's population. There remains real poverty in the world—most worryingly in 50 basket-case countries that contain 1 billion people—but the overall trend has never been more encouraging. The global economy has more than doubled in size over the last 15 years and is now approaching $54 trillion! Global trade has grown by 133 percent in the same period. The expansion of the global economic pie has been so large, with so many countries participating, that it has become the dominating force of the current era. Wars, terrorism, and civil strife cause disruptions temporarily but eventually they are overwhelmed by the waves of globalization. These circumstances may not last, but it is worth understanding what the world has looked like for the past few decades.'

(America) 'remains the most open, flexible society in the world, able to absorb other people, cultures, ideas, goods, and services. The country thrives on the hunger and energy of poor immigrants. Faced with the new technologies of foreign companies, or growing markets overseas, it adapts and adjusts. When you compare this dynamism with the closed and hierarchical nations that were once superpowers, you sense that the United States is different and may not fall into the trap of becoming rich, and fat, and lazy'

'Washington has gotten used to a world in which all roads led to its doorstep. America has rarely had to worry about benchmarking to the rest of the world—it was always so far ahead. But the natives have gotten good at capitalism and the gap is narrowing. Look at the rise of London. It's now the world's leading financial center—less because of things that the United States did badly than those London did well, like improving regulation and becoming friendlier to foreign capital. Or take the U.S. health care system, which has become a huge liability for American companies. U.S. carmakers now employ more people in Ontario, Canada, than Michigan because in Canada their health care costs are lower. Twenty years ago, the United States had the lowest corporate taxes in the world. Today they are the second-highest. It's not that ours went up. Those of others went down'

One of the biggest points I took away from the artcile is that America and its people will probably do fine in the global shift, as long as the governement doesn't get in the way. Quite frankly between the legislative branch and the executive branch and their constant drive to get re-elected it is amazing this country hasn't fallen further behind the rest of the world.

Source:
'The Rise of the Rest', by Fareed Zakaria, Newsweek Magazine

Money In Disease

Interesting article from the Economist about a new focus by pharmaceutical companies on developing countries. The standard operating procedure for most drug companies has been to market drugs to developed countries, where the population could afford the medication. Or they have developed niche products which cost a lot of money per dosage.

Over the past couple of years, emerging market countries have either created generic versions of the drugs marketed by Big Pharma, or just outright copied their drugs ignoring any patent protection. Most of the pharmaceutical companies have just ignored these developing countries.

That attitude may be changing due to these countries expanding middle class. 'McKinsey, a consultancy, estimates that the value of the Indian drugs market will grow from $6.3 billion in 2005 to $20 billion in 2015. China's market is expected to soar even more spectacularly. Given such prospects for growth, says Mark Feinburg of Merck, an American drugs giant, “you've got to be in these markets—it's a great opportunity.”'

To the right is a graph from the Economist showing the major causes of deaths in China, India & Brazil. The graph is not clear on what the percentage of minor deaths are, but looking at the percentages of the Big C's (Cardiovascular, Cancer, Chronic and Communicable) there is a lot of opportunity to sell some medication.

The three countries in the graph equal 2.6 billion people with a total GDP of $12 trillion dollars, growing at 8%. Developed countries (US, EU & Japan) have a population of 127 million, but a total GDP of $34 trillion dollars, growing at 2%. The developed countries are fairly saturated when it comes to the pharmaceutical market. However the market in the emerging economies is still under-served.

The Economist explains that for foreign companies tapping into these markets its not just as easy as opening a factory and selling drugs.

'Serving these markets will mean building up local expertise and research efforts. Where drugs firms have set up shop in developing markets, it has generally been to cut costs, rather than to cater to the needs of locals. But that is changing. Novartis has opened a research centre in Shanghai and has another outpost in Singapore focused on tropical diseases. Merck has struck several deals with firms in emerging markets to do early-stage research. The drugs giants argue that this new approach allows them to tap a global network of innovation, and also provides insights into local markets.'

Source:
'Quagmire To Goldmine ?', by The Economist
The World Fact Book, by The CIA

Don't Mess With Carl

In a letter sent to Yahoo's board, Carl Ichann has threaten to seek control of the board, if it doesn't renew talks with Microsoft. Below is the first paragraph from his letter.

'It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis. I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.'

Clearly Mr Ichann motives are driven by money, but he is saying what a lot of people were thinking. What was Yahoo thinking? I am sure that Yahoo thinks that they can go it alone, but what does it have to offer beyond the internet? The buy-out offers gives everyone at Yahoo a nice and neat way out of the business.

Goggle is eating every one's lunch when it comes to making money online, along with developing innovate ways to sell advertising space. Just this week, comScore announced that Google beat out Yahoo for the first time in the number of unique visitors with 141 million views. Yahoo was second with 140 million and third was MSN at 121 million. When it comes to the share of online searches, Google has 59.2% of the market followed by Yahoo at 21.6% and MSN at 9.6%.

Below is a chart of Google, Apple, Yahoo & Microsoft over the past year.

Source: yahoo.com

If Ichann gains control of the board, and Microsoft doesn't want to buy the whole company, will there be more value in breaking up Yahoo?

Source:
'Icahn Threatens Yahoo Board Fight After Failed Bid', by Crayton Harrison, Bloomberg News
'Google Sites Capture #1 Property Ranking for the First Time', by comScore.com