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Robert Doll, equity strategist for Black Rock, the world's largest money manager, says the growing population of the U.S. will drive economic growth in the next decade compared to Japan and Europe. He says that over the next two decades the U.S. work force will grow by 11%, Europe's will decline by 5%, and Japan's will decline by 17%. China's population growth will be only slightly more than that of the U.S. during that period and Doll expects China's growth to slow. He sees America as the best bet in a bad neighborhood. Higher immigration in the U.S. is a huge positive, as he points out economic growth is simply the product of the change in the size of the work force multiplied by its productivity. And America's productivity is good enough compared to other nations, is how Doll sees it. In 1995 the U.S. produced 25% of the world's goods and services, it was still 25% in 2010 says Doll. Other economists have pointed to this and observed a similiar pattern for most of the twentieth century. Doll sees this pattern continuing. India's population will show signficant growth and he sees greater opportunity there for long term investing. Doll sees a decoupling between U.S. stock markets and high unemployment. Most of the large U.S. companies generate a large portion of their sales and profits overseas. He estimates 40% of the business of these companies is overseas. Doll's estimate is for 70% of the incremental earnings growth of the S&P 500 companies coming from overseas markets. He also expects higher inflation with the Fed keeping it from getting out of control, and deficit cutting efforts to cut some trillions over the years. He sees favorable prospects for equities based on the money growth being strong and credit markets being good....

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Evergrande relied on presales to finance itself and keep its activities in real estate. A Chinese government crackdown on speculative behaviours and taking on too much debt by property developers led to Evergrande having to offload properties at large discounts. Evergrande is China's second largest developer with $300 billion in debt. Investors have down payments on around 1.5 million properties and face uncertainty in getting money back if housing projects are not completed.

Hong Kong listed shares have collapsed by more than 80% this year. There are risks to financial stability in China if there is a collapse of Evergrande, says this report in DW.com. About 29% of China's economic output is tied to the real estate sector and Chinese in large cities invest savings in apartments as part of speculative investing.

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Bernstein Global Research looked into how long it takes to regain losses if one remained fully invested in the market with a diversified portfolio. For the 12 month period starting July 1, 1931, with 67% decline the research showed it took 39 months to be made whole and recover the losses. For the 12 month period starting March 1, 2008, with a 43% decline the research shows it took 22 months to be made whole and recover the losses.

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Mortgages Ltd a company in Arizona which makes loans to commercial developers at rates of 12% with other fees that bring it up to 19% with no red tape, higher rates which serve about 5% of that market, went bankrupt with only 27 of 71 commercial borrowers making their loan payments. It used doctors and dentists money to loan out usually for smaller projects of $20 million under the CEO Coles' father who founded the firm, but in the last few years of the booming real estate market the younger Coles who was running the company overreached and went into larger projects in Tempe, Arizona and other places which ran into more than $100 million. These docotrs and dentists would get 9% to 18% returns on their money but as the company overextended and loaned out $928 million ten times what it had previously lent out it ran into trouble and as real estate went sour it has failed to make the interest payments to these doctors dentists and others. Mr. Coles then commited suicide recently. It gives some insight into the nature of events in the commercial real estate markets of places like Arizona....

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Jon Gertner makes several critical points about the importance of supporting and investing in manufacturing. The U.S. private sector in new industries such as alternative energy, and electric cars is competing not just with the private sector in Germany, S. Korea or Japan. It is competing with the governments of these countries which are investing heavily to build innovation and jobs in their home countries. Innovation, design and manufacturing are woven together in these new industries in a manner that is different from the iPhone/ iPad/ Search algorithms /Facebook software type industries dominated by names such as Apple, Google and Facebook. The software industries are the opposite of jobs intensive industries with Facebook having 2000 employees and Google having 29,000 employees. By comparison the lithium battery industry could generate over 62,000 jobs in the next 10 years, and the electric car industry as a whole with its supplier networks could generate much larger numbers of jobs. Because of the advanced technology involved these are good well paying jobs. The finance industry in the U.S. is attracted to the quick returns in the software related fields, leaving a gap for the American government to fill a role nurturing these industries. This would be similiar to the manner that the German and Japanese governments do working with their own private sector. The private sector in the U.S. needs only the early nurturing and can operate on its own by innovating its way to competitiveness in manufacturing and cost after the early years. Because of missteps in failing to support manufacturing in the U.S., the U.S. may have to import some of the technology from countries such as Japan and S.Korea to make up for these missteps. This is happening in the lithium ion battery manufacturing technology and facilities, which experts say is being successfully imported from these countries to the U.S.. The Obama administration has provided $2.5 billion dollars from the stimulus investments to support projects of 30 companies operating in the advanced battery technology field. This includes companies such as A123 Systems and LG Chem Power in Michigan. As a result of these efforts the Department of Energy estimates that by 2015 the U.S. will have the capacity to manufacture 40% of the world production of lithium batteries for the autombile industry. In 2009 the U.S. had capacity to manufacture 2% of the batteries....

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The U.S. Justice Department files a civil lawsuit accusing S&P and parent company McGraw Hill of giving improper ratings to poor mortgage investments which allowed them to inflate in value, creating the conditions for a crash in these investments when the crisis happened in 2008. The penalty sought by the Justice Department and the attorney generals for 16 states is $5 billion to cover losses to investors such as state pension funds and federally insured banks and credit unions. The civil suit comes 5 years after the onset of the financial crisis of 2008, which created the greatest financial crisis since the 1930's. Negotiations for a settlement were conducted by the Justice Department with McGraw Hill for an extended period of time. The talks broke down in January 2013. In these negotiations the Justice Department sought a penalty of over $1 billion and S&P's acceptance of wrongdoing. S&P countered with a proposed settlement of $100 million. The government pushed for admission of guilt on at least one count of fraud. It is not known why the Justice Department filed this lawsuit 5 years after the crisis when the public's memory of the ratings issue is beginning to fade. Is it because the preparation of the case required this much time, the action not taken because it would be seen as punitive in 2011 when S&P downgraded the U.S. sovereign credit rating, the fragility of the economy in 2011, because of the approaching election in 2012, or some other reason. One of the reasons why it was important to take corrective action early was to preserve the integrity and credibility of financial markets, so critical for public confidence. An additional reason was to secure from credit ratings companies the internal reforms and change in leadership and culture that would prevent recurrence and damage to the economy. An example of this change is the change in leadership and culture underway at Barclays bank in Britain after the investigation into the manipulation of the London Interbank Offered Rate or LIBOR. The Justice Department action in this respect is an advance from the policy at the S.E.C., which has not insisted that companies involved in the crisis admit wrongdoing, setting up the process for changes in leadership and culture such as the one at Barclays....

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This piece by Marty Bernstein shows how the modern marketing machine of the decade to 2010 operates to sell cars to the new generation of car buyers thats just emerging- the generation of ipods and digital cameras and trendy cell phone, and dowloaded music. This target customer is nonconformist and the term "metro-funky", a demographic/psychographic term is used for these new buyers. RPA is Honda's advertising agency. The tag line for the Fit is - "The Fit is Go". The campaign is very creative and over 1000 Honda dealers have prepared to sell 50,000 Fits the first year. The Fit is already a bestseller in Europe and Asia.

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This Journal editorial points to a Philadelphia Fed study showing that students in the middle class with higher student debt are reluctant to start small business. The Fed study shows new firms with five employees declined by 17% on average for 2000-2010 in counties where relative student debt was up by 2.7%. The average student loan customer owes $28,000. Student debt has doubled from $547 billion in 2007 to over $1 trillion in 2015. As small business makes up about half of the private economy and generates 6 of 10 new jobs, the effects on small business show the damage being done rising student loan debt.

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The new Bank of Japan governor Haruhiko Kuroda, faces the task of developing a consensus in the board for further monetary easing. In this task he will have an ally in deputy governor Iwata. A look at the stands taken by other seven members, including deputy governor Nakaso, shows only three other members having an open attitude to further quantitative easing. The members who are open to further easing are Miyao, Ishida and Shirai. Other members have to be persuaded by Kuroda.

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Steve Lee Myers reporting from Moscow and St. Petersburg, Jo Becker from Washington and London, and Jim Yardley from Nicosia, Cyprus, provide this extraordinary and exceptional report on the rise of a small group of friends, mostly from Mr. Putin's time in St. Petersburg, into a new sort of oligarchy replacing the old one under Mr. Yeltsin. This includes more familiar names such as Sechin at Rosneft, but also less familiar names such as Mr. Kovalchuk, chairman of Bank Rossiya, which owns major television and radio stations and newspapers in Russia. M. Kovalchuk is described as having acquired many of these media properties at a fraction of their real value. Bank Rossiya assumed management of assets of Gazprombank, and Gazprom bank purchased Gazprom Media with five television and a number of radio stations for $166 million, when Medvedev, a Putin associate put the value at $7.5 billion 2 years following the acquisition, according to this report. Other assets acquired in this manner include Channel 5 and Ren TV, giving Putin's inner circle control of the media and reducing any critical or different views on issues facing Russia. Many of Gazprom's assets were transferred to Bank Rossiya, say critics, including insurer Sogaz which was acquired for $100 million, later valued at $2 billion, says the report. Names on the this inner circle also include Yakunin, head of Russian Railways, also include names like Fursenko and Timchenko. Most of the people in this inner circle are now targets of western sanctions. Missing in this report is mention that that this inner circle of the second term as president replaces the larger circle of the first terms as president and prime minister, with Putin benefitting from experts and advisors in the first terms. That circle included Finance minister Kudrin known for his successful management of the economy, and others who left the administration after flawed parliamentary elections. Even prime minister Medvedev is not mentioned as part of this inner circle, suggesting a degree of isolation which could be perilous for the Russian economy as it deprives the Russian president of different opinion and useful advice. This is a pattern seen in many emerging market countries which experience corruption during the period of industrial development. A pattern seen also in China under the Communist Party. And in Venezuela where a new Bolivarist class was created. In emerging market democracies such as India and Turkey the problem is also present, except that in India the recent open election led to the ouster of the Congress led government with many cases of corruption in its second term. A similiar election led to a new government in Indonesia, showing that there is another way beyond the Putin Way. Behind the protests in Hong Kong and in Russia, as well as in India, were the huge gaps in wealth and the growing inequality, corruption, lack of responsiveness of ruling governments. In Russia this takes another dimension with efforts to control the internet and media, and efforts to spread this style of democracy. This has created problems in the Putin government's relations with western nations having open societies and free media, and unwilling to accept a distorted model of democracy. Another less noticed aspect of the evolution of these emerging markets is that upto a point development proceeds even accelerates even in the presence of corruption, and then reaches a point where development and growth slows with problems of corruption, mismanagement of resources, declining productivity, economic and political errors, or unfavorable external environment. India faced this problem in 2012-2013, Russia is likely to face this in 2015, and China faces the prospect of growth slowdown by 2016. This feature of emerging markets also reminds one of the frequently quoted old English saying by Lord Acton- "Power tends to corrupt, and absolute power corrupts absolutely." An idea also attributed to William Pitt the Elder who said- "unlimited power tends to corrupt the minds of those who possess it." ...

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This analysis of coal use using graphs shows a clear move away from coal in the world, except for two growth markets China and India which account for 60% of the increase in coal use since 2008. India has gone black in its shift to increasing use of coal. China has begun the shift away from coal to address the smog over large urban areas, poor air quality and health impact of coal use. Because China used five times the coal used by India in 2017, the overall impact in China and India is showing a shift away from coal to hydropower, other renewables including solar energy. It is likely that India will make the shift following China's example in the future. 

The trend is clear when one looks at the incremental terawatt hour and where it comes from. The shift is clear to renewables, hydropower, and non fossil uses in the rest of the World and China which account for most of the coal use in the world.

 

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A way of gauging the extent of a bubble in the internet IPO's in 2013, says Hulbert, is the first day return on IPO's in the U.S. of 25% in mid-Aug to mid-Nov 2013 compared to 96% in the first quarter of 2000. He cites a study by finance professors Jerry Wurgler of New York University's Stern School of Business and Malcolm Baker of Harvard Business School, which stresses the need to use objective indicators in assessing the current equity markets and not relying on memories alone. Investor caution after two bubbles since 2000, active regulatory oversight of markets, and legal frameworks updated for changes in financial markets have provided additional safety and stability to markets. The study authors cite evidence for the changes in the way investor sentiment values speculative stocks compared to established stocks. The price/book ratio per share or net worth of established stocks is way higher compared to speculative stocks in 2013 compared to 2000. In 2013 established companies in the S&P 1500 index, according to FactSet, had a 49% higher price/book ratio on average than speculative stocks. Wurgler and Baker used dividend paying stocks as "established" stocks compared to non dividend paying stocks as "speculative." Another piece of evidence that companies are also adjusting to sentiment this time is that less money is coming from stock issuance in 2013 of 11% compared to 20% in 2000. Visible evidence of company behaviour is also telling- banks are changing bahaviour after tougher regulatory oversight and settlements in 2013. GE is planning to shrink GE Capital and put it on sale. Investors have sharply cut back allocations to stocks and are returning to modestly higher allocations from much lower levels and memories of 2000 and 2008 are still present....

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"To Invest (at home), To Align (with allies), To Compete (with the world)" sums up the approach of president Biden with China. It also sums up the approach at home and overseas. Biden senior adviser, Jake Sullivan at Council of Foreign Relations sets out the framework and path for managing US-China relations into the future for many decades. Here at the Council of Foreign Relations he shows how- through careful study of the relationship's history, the changes in the relationship, and where it is today in 2024. Having participated in previous administrations Jake understood how it has evolved, where mistakes were made by both China and the US, where misperceptions took hold and need for clarification, for action. The old Strategic Dialogue followed by Paulsen under Bush 2000-2008 allowed the relationship to be guided by business interests, -without any clear strategy or idea where it was going except maximizing interests of business on both sides- was continued by Kerry under Obama 2008-2016. Sullivan, Blinken and Biden have built a Strategic Economic Cooperation Framework that has clear goals on the American side and goals on the Chinese side, and work between the two presidents and their cabinet ministers. Trump 2016-2020 rejected the earlier Strategic Dialogue but was not able to set up a sound framework that would guide future relations for decades. Sullivan helped set up a new framework around three principles- To Invest, To Align, and To Compete.   Here he describes how the plan to invest trillions in infrastructure in the US was part of this plan's principle To Invest. On Align it was to derisk not decouple by reducing the excessive concentration of supply chains in China, that was revealed as a problem in the pandemic years. Building up manufacturing at home and in India, Vietnam and Japan. Align also was to have allies Japan, South Korea and India to be aligned with the US policy. It also meant that all three countries would follow the same framework for their economies To Invest, To Align, To Compete.  By combining the strengths of the 2 largest economic centers Seoul/Tokyo with New Delhi/Sydney in Indo-Pacific the leveraging effect of US strength could be felt to support its position. And third to compete on level field so that America retained control of its technologies and implementing exports controls. And sharing this in  open communication with China that the US was protecting its technology and interests the way China has done in the past for its interests. The benefit of open communication even where there are differences had the advantage of not turning this into open rhetoric that damaged relations as had happened under previous administrations. Wang Yi on China's side having seen and approached it with careful study and reflection had similar goals to stabilize and put the relationship on a sound footing. Sullivan met extensively with Wang Yi in meetings in several locations around the world. Ministers Yellen, Raimondo, Blinken, Kerry, were sent to China for extensive discussions as part of this strategy in 2023 leading to remarkable change in the mood and confidence in US- China relations after tumult in 2016-2020 and uncertainty in previous administrations. Much credit goes to president Biden and Jake Sullivan, Anthony Blinken, and also to Wang Yi and Jinping in no way diminishing their own initiative, so that for the first time in decades the US China relationship is now on a stable footing. Both countries faced common challenges around counter narcotics, around climate change, and other issues. These are being addressed. Competition is managed carefully and no rhetoric is taking place so that the largest two economies and about 1.7 billion in US and China and 2 billion people who are allies in India/Indonesia/Vietnam/ Korea/Japan living on the same planet earth can have economic and other cooperation  with different cultures, economic structures and systems of government. The result of such a framework also gives the basis for cooperation with America's allies to invest in Africa and Latin America and in the people of these two continents as another level of alignment and investment for a safer better world. ...

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The failure of the MF Global Board of Directors to question the huge bets on European sovereign bonds taken by Jon Corzine. This board had members with sophisticated knowledge of financial markets. Then why did it act passively, asks Davidoff. Boards have some of the same blinkers that the CEO has, and may have been led to believe that this was a good course of action. Failure of boards of directors in recent times include a long list- Lehman Brothers, GM, H-P, Toyota, most recently Olympus, and others. In some cases as with Corzine and the head of Lehman, one sees a headstrong executive with a history of success, in others as at GM and Toyota the Board is stacked with members selected by or favorable to voting with the CEO. And at H-P or Olympus, an inside group that runs things the way they see fit. Most boards of this type are highly insulated from outside opinion, and highly confirmed in the correctness of their own opinion even when the situation has dangerously deteriorated.

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Glenn Hubbard, Professor at Columbia University and Bush adviser who helped design the Bush tax cuts, has an uneasy sense about the tax cuts today. He says the tax cuts have been undermined by years of deficit spending. The Bush tax cuts expire Dec 31st 2010 in the USA if Congress does not act. Macroeconomic Advisors estimates that letting the tax cuts expire will take 0.9% off the growth rate. Nobel Prize winning economist Paul Krugman prefers to let the tax cuts expire and provide more help to state and local governments to preserve jobs that are being lost due to budget shortfalls. But becuase of the political climate he prefers to let the tax cuts go on for a limited period. The Obama administration may decide to continue with the tax cuts rather than fight the serious battles for deficit reduction, after spending much of its political capital on health care reform. Hubbard also thinks in the current situation its best to keep the tax cuts even with the concern for the deficits. He says the spending during the Bush administration, especially the Medicare prescription drug benefit, which is estimated to cost $400 billion from 2004-2013, was a major problem. The incentives to business and investors for productive effort in the Bush tax cuts is uncertain, if it becomes clear that the price for these cuts is higher taxes later on to cover growing deficit spending. Hubbard does not see any serious action on the deficit till the next Presidential term and sees it better to keep the tax cuts till then, when some serious discussion can take place....

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Samsung's decision to focus on LCD Displays and improve existing technology, citing lack of demand for higher priced OLED Displays, leaves LG Display as the sole maker of next generation OLED Displays. OLED Displays allow the screens to be very thin and to be made in flexible forms with better colors. In this WSJ interveiw, Han Sang-beom, the head of LG Display division says how LG reached the decision to take the risks involved in making the large investments required. He says LG Display already has about 2 years of experience ahead of other companies which he sees as important to keep in preparing for the future market. He cites progress in reducing panel defects and production efficiency, moving up the learning curve, which is similiar to its early experience in developing LCD's. LG Display's strategy is to keep this lead for capabilities that will be needed for the new wearable devices, automobiles and new types of products. It sees other competitors who are developing OLED panels moving into manufacturing to help solve the problems related to cost reduction and product competitiveness. LG Displays production plans are for the second OLED plant with capacity for 26,400 sheets of mother glass a month to be ready by the end of 2015, following the first plant of 8000 sheets. Each sheet makes six 55 inch TV screens. LG's existing small screen business is highly dependent on demand from Apple. LG Display plans to continue focus on LCD mobile product screens while developing new flexible OLED mobile screens....

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Ros Douthat sees the crisis only putting things more in the hands of the same elites that got us into the mess in the first place. The mess with an out of control financial sector which began under Treasury Secretary Rubin, is now being handled by his proteges Summers and Geithner. The lack of any new solutions and the continuation of the "too big to fail" era, says Douthat.

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Silicon Valley R&D at Google X, Microsoft Research and other creative labs. How this is different from R&D at Bell Labs, Xerox PARC, which gave an impetus to work at Apple and Fairchild Semiconductor during the the era of the sixties and seventies. Claire Miller poses the question what happens to basic research done at government research labs and places like Bell Labs, PARC, in today's world where moonshot research efforts could mean Google Glass, and where many of the new products or apps are acquired such as Google's Maps. These acquired companies lack the resources for basic research and are for the most part smaller efforts. Is what is done now adequate? Apple has many efforts in-house and invested in developing the iPad and iPhone, including coming up with the new concept and taking it to commercialization on a global scale. The Google X draws media coverage, yet basic and applied research is going on all the time in labs from Boeing's airplane research to Apple's new product from scratch efforts building on prior research and developments in each field....