Friday 2 April 2010
How We'll Work in 2025
A slideshow from www.fastcompany.com, a great website for innovative companies and individuals to keep up with evolving business practices. The slideshow is mainly of pictures of what is known as a 'mobile office',a modern-age office whereby people are not assigned a fixed workplace but instead move around day-to-day. Although it took some years for the concept to be tried and tested, employees seem to be responding positively to the idea. The picture below is from the new sydney-based offices of the Macquarie Group--shockingly, a bank. As the slideshow notes, “Everything is designed to be ergonomic... something might look like a sofa, but the measurements are made for sitting up and working.”
Wednesday 31 March 2010
28 Places to See Before You Die
Smithsonian Magazine has compiled a list of 28 places to see before you die. The Giza Pyramids and the Louvre inevitably make the list, but I was particularly struck by the tremendous beauty of the Iguazu Falls, which lie on the Argentina-Brazil border and are a true testament to the dizzying natural beauty of South America (Machu Picchu also makes the list). I've reproduced a picture of the Iguazu Falls below (unfortunately low quality), but if you're reading this make sure to google it and look at some pictures.
Monday 29 March 2010
Arab Summit
Foreign Policy reports on the continuing annual mockery that is the Arab League Summit, which is held in Tripoli this year amid declining attendance by Arab leaders and low expectations by foreign observers. As the short article notes, given the deteriorating relationship between the U.S. and Israel, it would seem that this is a particularly opportune moment for Arab leaders to mount a renewed diplomatic effort for or against the Arab Peace initiative. In my view, while Palestine remains (perhaps vaguely) a unifying theme for Arabs everywhere, the divergence between Arab countries--politically, socially, economically--has become too wide for there to be any Arab united front in a meaningful way, and this will forever hinder any progress in these summits.
Friday 26 March 2010
Hedge Fund Homes at a Discount
A slideshow. Not all the houses are that cool, and they're all located in the U.S. north-east (NY and CT), but some of them are nice. I wonder how many people can afford houses priced at $10mm+ and whether they buy them outright or take mortgages. For those London-based, house prices are even more depressing. In fact, given the terrible economic climate, rising taxes, and horrible weather, I'm beginning to wonder why anyone (me included) wants to pay so much money to live in that city.
Thursday 25 March 2010
Edward Burtynsky
Burtynsky is a Canadian photographer whose work depicts natural landscapes altered by industry; among the works which treat this theme are photos of mines, ships and ship-making, an industrializing China, and oil, the subject of his latest photo-book. The following is a picture from his China collection which depicts the dizzying urbanization of Shanghai; almost nothing natural remains in the vast expanse of drab high-rises.
Burtynsky acknowledges the inherent tension between the themes he treats and his ability to do his work: without modern industrial advances, he wouldn't be able to travel to the places he does.
Burtynsky acknowledges the inherent tension between the themes he treats and his ability to do his work: without modern industrial advances, he wouldn't be able to travel to the places he does.
Wednesday 24 February 2010
More from PIMCO
Scott Mather, head of global portfolio management at PIMCO, gives his views on the climate for bond investing here.
In general, Mather sees a fairly bond-friendly investment climate going forward, due to a backdrop of low growth and benign inflation. He acknowledges that there are tail-risk scenarios worth considering: on the one hand, the possibility of hyperinflation due to massive monetary expansion, and on the other, a deflationary cycle similar to that of Japan. He sees the balance of risk falling towards the deflationary/disinflationary possibility.
Even in an environment where the inflation/rates and growth outlooks are benign, a headwind for bonds is the credit issue: namely, the deterioration of fiscal positions for developed countries, which is not happening in emerging countries. Mather sees the long-term secular outlook for emerging markets as positive, but still prefers to hold on to only high-quality credits at this stage, as these outperform whenever risk gets repriced.
On a country-specific basis, Mather has a favorable opinion of European bonds relative to U.S. bonds--he prefers France and Germany to the U.S., as they have similar yields but a much better debt dynamic: lower deficits, debt:GDP ratios, similar growth, and no headwinds from ending quantitative easing (which might cause demand/supply imbalances). Like Gross, Mather sees the UK as a must to avoid, with the added point that the UK is more dangerous than the U.S. because the pound doesn't have the advantage of a reserve currency status. Finally, he gives his view on Japan:
"There is virtually no conceivable way that Japan can get its debt dynamics under control through normal ways – and that means it will resort to either default or inflation through massive monetization, and yields are low. It might muddle through in the short-term, but in the long-term it has problems."
In general, Mather sees a fairly bond-friendly investment climate going forward, due to a backdrop of low growth and benign inflation. He acknowledges that there are tail-risk scenarios worth considering: on the one hand, the possibility of hyperinflation due to massive monetary expansion, and on the other, a deflationary cycle similar to that of Japan. He sees the balance of risk falling towards the deflationary/disinflationary possibility.
Even in an environment where the inflation/rates and growth outlooks are benign, a headwind for bonds is the credit issue: namely, the deterioration of fiscal positions for developed countries, which is not happening in emerging countries. Mather sees the long-term secular outlook for emerging markets as positive, but still prefers to hold on to only high-quality credits at this stage, as these outperform whenever risk gets repriced.
On a country-specific basis, Mather has a favorable opinion of European bonds relative to U.S. bonds--he prefers France and Germany to the U.S., as they have similar yields but a much better debt dynamic: lower deficits, debt:GDP ratios, similar growth, and no headwinds from ending quantitative easing (which might cause demand/supply imbalances). Like Gross, Mather sees the UK as a must to avoid, with the added point that the UK is more dangerous than the U.S. because the pound doesn't have the advantage of a reserve currency status. Finally, he gives his view on Japan:
"There is virtually no conceivable way that Japan can get its debt dynamics under control through normal ways – and that means it will resort to either default or inflation through massive monetization, and yields are low. It might muddle through in the short-term, but in the long-term it has problems."
Monday 22 February 2010
Bill Gross
I have mentioned PIMCO a few times already in my posts, and in this entry I want to take a look at Bill Gross's latest 'investment outlook' article (link here), which he writes with his usual urbane wit and intellectual panache. I will quote extensively from the article (I can't write better than him). The past few posts about sovereign debt provide a fitting segue for this discussion.
As Gross says, the recovery from the financial crisis has been driven very much by government support, and while the private sector underwent a hard deleveraging process, the public sector piled on debt. This rise in government debt levels is typical in the aftermath of financial crises, according to the book of the moment, This Time is Different, by Kenneth Rogoff and Carmen Reinhart. Now that most of the government support is due to run its course, many are expecting (or hoping) that the private sector can resume its cyclical bounce, as in other recoveries.
However, while part of the corporate sector may well have gone some distance in repairing its balance sheet, individuals and households remain levered, face grim job market prospects, and along with small businesses, lack access to credit. This, according to Gross, is what puts the operative word "new" in their "new normal", the term used to describe the feeble growth we should expect in the post-crisis developed world.
Perhaps the word "new" is used to drive home the point to those who expect a normal cyclical recovery. However, as Gross acknowledges, if one looks at historical crises where the prevailing conditions were of private sector deleveraging and public sector leveraging and re-regulating, one finds that the "new normal" is perhaps not so "new." Reinhart and Rogoff undertake exactly such a study of debt cycles, and have three main conclusions (quoting Gross):
"1. The true legacy of banking crises is greater public indebtedness, far beyond the direct headline costs of bailout packages. On average a country’s outstanding debt nearly doubles within three years following the crisis.
2. The aftermath of banking crises is associated with an average increase of seven percentage points in the unemployment rate, which remains elevated for five years.
3. Once a country’s public debt exceeds 90% of GDP, its economic growth rate slows by 1%."
He continues,
"These conclusions are eerily parallel to what has been happening in the past 12 months."
This discussion has major implications to investment choices going forward. From a macro perspective, investors should keep in mind the following:
1. Risk and growth-oriented assets should be generally positioned in Asian and developing countries, which are less levered, have stable debt:GDP ratios, and are thus less easily prone to bubbling and experiencing the negative deleveraging process. In Gross's words (bold emphasis mine),
"When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. Look, in other words, for a savings-oriented economy which should gradually evolve into a consumer-focused economy. China, India, Brazil and more miniature-sized examples of each would be excellent examples. The old established G-7 and their lookalikes as they delever have lost their position as drivers of the global economy."
2. Although you should seek to invest less risky and fixed income assets in these same countries if possible, bear in mind that they are less liquid and less developed financial markets. Thus, fixed income choices must still be oriented towards developed countries, which have a consistent track record of delivering payments and respecting property rights. However, differentiation within these countries is important (see 3).
3. "Interest rate trends in developed markets may not follow the same historical conditions observed during the recent Great Moderation." Generally, the downward path of yields for developed countries was very similar over the past three decades (with some exceptions, Japan an obvious one). However, going forward, one should not expect to see a coordinated move upwards in yields:
"Each of several distinct developed economy bond markets presents interesting aspects that bear watching:
1) Japan with its aging demographics and need for external financing,
2) the US with its large deficits and exploding entitlements,
3) Euroland with its disparate members – Germany the extreme saver and productive producer, Spain and Greece with their excessive reliance on debt and
4) the UK, with the highest debt levels and a finance-oriented economy – exposed like London to the cold dark winter nights of deleveraging."
Given this discussion, PIMCO sees Germany as good potential value, although it notes that its position toward Euro area bailouts must be watched. The harshest words are reserved for the UK, whose gilts are "resting on a bed of nitroglycerine." It has high debt levels, a serious potential to devalue its currency, and according to Gross dubious accounting standards which influence rates, all which present high risks for bond investors.
As Gross says, the recovery from the financial crisis has been driven very much by government support, and while the private sector underwent a hard deleveraging process, the public sector piled on debt. This rise in government debt levels is typical in the aftermath of financial crises, according to the book of the moment, This Time is Different, by Kenneth Rogoff and Carmen Reinhart. Now that most of the government support is due to run its course, many are expecting (or hoping) that the private sector can resume its cyclical bounce, as in other recoveries.
However, while part of the corporate sector may well have gone some distance in repairing its balance sheet, individuals and households remain levered, face grim job market prospects, and along with small businesses, lack access to credit. This, according to Gross, is what puts the operative word "new" in their "new normal", the term used to describe the feeble growth we should expect in the post-crisis developed world.
Perhaps the word "new" is used to drive home the point to those who expect a normal cyclical recovery. However, as Gross acknowledges, if one looks at historical crises where the prevailing conditions were of private sector deleveraging and public sector leveraging and re-regulating, one finds that the "new normal" is perhaps not so "new." Reinhart and Rogoff undertake exactly such a study of debt cycles, and have three main conclusions (quoting Gross):
"1. The true legacy of banking crises is greater public indebtedness, far beyond the direct headline costs of bailout packages. On average a country’s outstanding debt nearly doubles within three years following the crisis.
2. The aftermath of banking crises is associated with an average increase of seven percentage points in the unemployment rate, which remains elevated for five years.
3. Once a country’s public debt exceeds 90% of GDP, its economic growth rate slows by 1%."
He continues,
"These conclusions are eerily parallel to what has been happening in the past 12 months."
This discussion has major implications to investment choices going forward. From a macro perspective, investors should keep in mind the following:
1. Risk and growth-oriented assets should be generally positioned in Asian and developing countries, which are less levered, have stable debt:GDP ratios, and are thus less easily prone to bubbling and experiencing the negative deleveraging process. In Gross's words (bold emphasis mine),
"When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. Look, in other words, for a savings-oriented economy which should gradually evolve into a consumer-focused economy. China, India, Brazil and more miniature-sized examples of each would be excellent examples. The old established G-7 and their lookalikes as they delever have lost their position as drivers of the global economy."
2. Although you should seek to invest less risky and fixed income assets in these same countries if possible, bear in mind that they are less liquid and less developed financial markets. Thus, fixed income choices must still be oriented towards developed countries, which have a consistent track record of delivering payments and respecting property rights. However, differentiation within these countries is important (see 3).
3. "Interest rate trends in developed markets may not follow the same historical conditions observed during the recent Great Moderation." Generally, the downward path of yields for developed countries was very similar over the past three decades (with some exceptions, Japan an obvious one). However, going forward, one should not expect to see a coordinated move upwards in yields:
"Each of several distinct developed economy bond markets presents interesting aspects that bear watching:
1) Japan with its aging demographics and need for external financing,
2) the US with its large deficits and exploding entitlements,
3) Euroland with its disparate members – Germany the extreme saver and productive producer, Spain and Greece with their excessive reliance on debt and
4) the UK, with the highest debt levels and a finance-oriented economy – exposed like London to the cold dark winter nights of deleveraging."
Given this discussion, PIMCO sees Germany as good potential value, although it notes that its position toward Euro area bailouts must be watched. The harshest words are reserved for the UK, whose gilts are "resting on a bed of nitroglycerine." It has high debt levels, a serious potential to devalue its currency, and according to Gross dubious accounting standards which influence rates, all which present high risks for bond investors.
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