strategist

US Healthcare Debates: Civilized or Not?

I am getting tired of all the bickering on both sides. In the 21st Century, shouldn't the Democratic Party and Republicn Party sit down to a civilized, televised debate? Don't the people of the republic deserve that from politicians?

China GDP Rebounds

I don't think the Q2 '09 GDP figure is accurate: 7.9%. My forecast said growth would be 14.5%. I suspect that the Chinese government is under-reporting the growth figure so as to keep the West as far as way from the country as possible. Had the government reported the much higher and more accurate figure, you can bet your bottom dollar that every government in the West would be hammering Beijing to open up its border to more and more and more and more foreign trade and FDI.

I don't think the CCP is just ready to let the capitalists from London, New York and Tokyo come into Shanghai and Beijing and take over the economy. Nope. Not going to happen in my lifetime and most likely not going to happen for another 100 years.

The West should give up and try to open ne w markets elsewhere. China is a lost cause. There is no way China will let the West fully come into the country. Sorry - not going to happen.

China: How Much Risk Are You Willing to Accept?

As the world continues to face huge hardships in economic growth, many companies are looking toward China as the 'promised land' for future global demand. My simple question to all capitalists is this: how much risk are you willing to bear?

The Chinese government can, at anytime, seize your assets and call it even. Why would the CCP do this? Why not? Who is going to stop them? Think about how China was closed off the West for so long. And think again about how China could do it again? Perhaps, the 5-year plan for the government is to suck in as much capital and natural resources over the next five years and then, BOOM. The great wall goes back up and all foreigners are locked out again.

I, for one, would not be willing to risk one dollar of capital in China. There are so many growth opportunities in the world and I would rather put capital to work elsewhere. In my opinion, China will be ready in about 25 years.

I hate to pop the bubble of fantasy thinking but I it is time for Western capitalists to wake up and understand what is truly happening in Asia.

WSJ: Danny Pang took $83M from investors

Why does the WSJ report such 'unnewsworthing items' anymore? Who cares whether some smuck rips off some poor sap who wanted to reap huge annual returns of 20-30% per year? I really don't care anymore. There are so many stories of 'trusted advisors/fund managers' going to the dark side and 'commiting outright fraud'. Really - who the fxxk cares anymore? Shouldn't the WSJ report on something else?

Get Danny Pang off the stage. His 15-minutes of 'fame/infamy' is over. Get off the stage. Next!

Atlas Shrugged: Should Big Government Help Big Business in the Post-Global Market Crash?

Deep down I am at a loss: should we permit Big Government the opportunity to correct the recent corruption and failings of capitalism? Or should business leaders stand up and revolt against the short-term and long-term grab by government of the tools of capitalism?

I hate to say it but, at this current developmental stage of capitalism, we need Big Government to 'back stop' many industries at this critical point in our economic history. If government does not help now, I suspect every nation state would succumb to the pressures of pure socialism or at the worst, complete communism.

So, big business should step aside for now and let President-elect Obama and his team do what they feel is best to correct the 'S.S. Capitalism' battleship.

(Note: If you subscribe to WSJ.com, read the opinion piece here.)

Advice to President-Elect Obama: Avoiding the Recession

Dear President-Elect:

As many around you are giving you very sage advice on how to cure the ills of the economy, here are a few more ideas to help you and your fellow Americans:

1) Repeal all taxes for lower and middle-income earners,
2) Repeal all capital gains taxes, and
3) Charge GOP-radio talk shows for polluting the airwaves.

That should get the economy back on track.

Best wishes on a successful first term,

Blogger.

What if?

If the stock market crash and economic crisis is being driven by some evil bankers overseas, how effective will Paulson et al be?

Solution: Buy gold.

Worlds collide: US Sec of Treasury with Plans to Save the Financial Markets

The very idea of saving Wall Street while letting Main Street go down in flames is going to be a tough one to sell for many reasons. One, why should taxpayers save the Wall Street fat cats who earn those multi-million salaries? Two, what ever happened to the moral hazard thing I studied at school? Three, having to sell one's Porsche or house on the lake is not a signal of a sad event when so many regular folks are having to sell their homes at rock-bottom prices. And last, it would be nice to see some of those pompous MBA-holders seeing how the real people live: within their financial means.

Though I have never personally met Paulson (I did see him one day when he popped into my office for a visit so many years ago), the US Democratic-controlled Congress will never allow the Bush White House to ride into town and save the people. Not going to happen. The Democrats will do their very best to let this drag on until the elections.

Perhaps the US government can nationalize Bear Stearns and then, recapitalize the firm to the tune of a couple of trillion bucks and then, go out and buy up all the distressed mortgages throughout the country. This would allow good people to remain in their homes and try to work out their mortgage problems. And for those who choose to walk away, the US government can use all those homes as 'mark work projects'. Those empty homes will need to be fixed up and resold. All that work is going to help a lot of unemployed people.

JPN Yen: 101 in March 2008

Talk in Tokyo that the JPN Yen will hit the 101 mark (US$) in March. I do not believe it. I feel the JPN Yen will rise above 100 yen and may actually touch 98 by the end of the month. This new surge in interest in the JPN Yen will be result of three major factors: (1) US credit crisis is spilling over to all global credit markets, (2) expectations that many US companies Q1 results are going to be horrific, and (3) the Fukuda government caught between a rock and hard place now that the DPJ is going to make the LDP's life in the lower chamber a living hell. Nothing good will come out of having the Japanese government (upper and lower houses) split between the two main groups. If the LDP regains power of both houses, I would expect some good to come. But, the next election is far away.

US 2008 Tax Rebates: Spending Advice

Well, it looks like the US President Bush and the US Congress will come to some level agreement on attempting to stimulate a very bad economy. In an election year, you knew this had to be coming. I only hope the stimulus works. But, before we grab our nearest lucky charm and recite some prayers, here is how I think my cousins to the south should spend their money: buy one Google share. With millions of people putting in a 'buy order'  for one share, we might expect to see its share price break the $800-mark. While I don't own any shares in GOOG, I, for one, would like to see its share price hit $1000 one day. In order for this to work, I would like to see online brokerages to waive their fees for one day.

Ah --- who am I kidding. Don't buy shares in Google. Do something more original - pay off a credit card balance. Put the money into a savings account for your child, grandchild or loved one. Whatever you do - don't go out and buy anything. $600 does not go very far anymore. If the US government, or for that matter - any government, wants to stimulate the global economy, the entire UN member states should pledge not to collect any income, social, pension, capital gains taxes from its citizens for one year. I am quite sure you could see some 'real' economic activity. C'mon - $600? Let's try harder here - folks.

US Economy in 2008

The correct question one should ask is not 'Will there be a recession?'  but, 'How bad will the recession be?' Right now, sovereign wealth funds, rich people, wealthy financial institutions must be very excited about the upcoming 'fire sale of assets'. The only winners in 2008 will be investment bankers and M&A lawyers. An entire new wave of industry consolidation is likely to pick up by Q3.

John Kenneth Galbraith: Rest in Peace

Good night. Thank you so much for all the wonderful books. When you get up into heaven, try not to fight too much with J.M. Keynes.

(New York Times)

Bankruptcy in the US

Better file for bankruptcy before it gets too late!

CNN: Got no money? Don't worry, Be happy!

Lord Greenspan: Danger Lurking Beyond

I'm glad to hear that Alan Greenspan has finally come out (albeit in a nudge-nudge, wink-wink kind of way) and said the current economic optimism in the face of reality may soon end. The housing boom has been partially, no - mainly, responsible for the 'cheery moods' felt on US Main Street and Wall Street. As house values go up so do people's net worth - or so it would seem. With more and more people borrowing money against the increase in the net assets, they may have forgotten that 'a bird in hand is worth more than two in a bush'. Heck, you know what I mean.

People who borrow against some unrealized gain in assets may find one day that that asset's value has fallen. Thus, that is one reason I do not really think of my unrealized gains in the capital markets as true gains. I will leave my stocks in my portfolio. I won't live the high life based on my portfolio returns. Nah. Leave the money and give the portfolio to my kids. Future generations of children will need more money than our generation needs to live. Remember these points: (1) children in the future will have fewer government services (social security), (2) children face higher taxes (sales taxes, income and social security taxes), (3) children face higher costs in education, and the list goes on and one.

I'll have to try and live on my salary alone. Mind you, I am putting aside 33% of my net income (after taxes and rent) into investments. Not too much left after to live the high life. Oh well... nothing I can do now.

I hope that people who take out second mortgages or even third mortgages are using the money to invest either in education or business enterprises. If people are taking our more loans just to finance a higher standard of living (more vacations, bigger vehicles, more swimming pools, etc.) I hope the housing market crash puts them out on the street. Because that is where they belong.

Kerplunk! The U.S. Dollar Crashes

Krugman takes a realistic look at what might happen should the US government give in to the strong business lobby of manufacturers and force the Chinese to revalue their currency. (NY Times.) The people running the President's Economic Council are either misguided or (fill in the blank). Forcing the Chinese to revalue their currency may just nudge the Chinese to stop their massive purchases of US Treasurys. With one less buyer of US T-bills, the US government may need to raise its interest rates to attract a new group of buyers. And what about the Chinese dumping the dollar? Could it happen? Maybe. Would the Chinese do it? Probably ... one day.

I hope that GW, with his Harvard MBA, would understand the macroeconomic implications to the USA should he continue to follow the advice of the 'Misguided Economic Council' in DC. Stop the trade saber-rattling and sit down with the Chinese. You win, they win. The American public wins.

In the Long Run, you're dead...

JMK's book, The General Theory of Employment, Interest and Money is now available on the web. I'm so happy now - I don't have to carry the heavy tome with me everywhere I go.

Many people talk about the 'book on the nightstand'. I don't have a nightstand. Too poor. Not enough room in the bedroom for an extra table. I often carry a book around in my Tumi bag. This month, "Strategist's Choice" is 'Valuaton for Mergers, Buyouts, and Restructuring' by Enrique R. Arzac.

I discovered that Arzac teaches a one-week program (via the book) at London Business School each year. I couldn't make the 2004 class but I do hope to make it either in 2005 or 2006. I'll pay for the course myself as I don't even want to ask my company to cover the costs (tuition is over 800,000 yen). I never want to be beholden to anyone or any company, thus I'll pay for the 'ride' myself.

China Yuan Revaluation

Much ado about nothing. If and when China does revalue the yuan, does it really do anything to help the US deficit? Will it truly effect positive economic and industrial change in the US? No, to both questions.

Buying Chinese-produced goods will still be cheaper when the yuan is revalued 10% up. What about 20%? No impact to shopping demand. As long as the average monthly salary in China is $250/month, no revaluation of the yuan will do anything to help the US deficit. I don't think anything will happen until the US dollar and the Chinese yuan reach parity.

The US$ is Falling!!

I have a smile on my face: The US$ is falling slowly but surely. It has just fallen below 104 yen today. If it continues its slow descent over the next few weeks and months, we should expect to see it fall below parity. Yippee!! Cheaper American books! Cheaper American food! Cheaper American vacations! Wait --- do I want to visit the US now? Are Americans upset at us Canucks for not accepting to be a part of their North American Missile Shield? Will some immigration officer punish me for Canuck PM Paul Martin? Will I get tossed into some jail cell just because the Liberal Feds want to submit legislation to legalise Mary-Jane cigs? Legalise same-sex marriages? Legalise everyone's right to breathe fresh air? E-gads... Canucks will be rounded up by the US government and sent off to re-education camps.

Krugman: The Debt-Peonage System

To address the main issue raised in Krugman's op-ed piece in the NYTimes, one must understand why the GOP wants to make it tougher for people to declare bankruptcy and thus, have a fresh start. The rationale is quite simple. Actually, it is so simple I am surprised that Professor Krugman did not see it - it's right in front of him.

If people are forced into a treadmill of poverty from generation to generation, it will make people face some serious hard choices: stay poor or do something to make their lives better. The only way they can pull themselves out of poverty is to join the armed forces and try to scrape by and survive (literally).

It is no surprise that the US Armed Forces is way behind in their recruiting drives. As many people see how much blood has been shed in Iraq, future soldiers are walking away from a live of military service. The only action the US government can take is to make it so hard for the poor to live. Once the poor find life so impossible to live they will have to turn to the government for help. And the only way the government will help is to offer them a career in the armed forces.

Now, don't get me wrong - I think the US government is onto a great idea. If a world government does not value human life, it is better to put people to work  by proteching the motherland/fatherland/homeland and derive some sense of 'personal self worth' and 'nationalism'.

Since the US does not want to bring back the military draft, the easiest way it can maintain a standing army is to draft people through the backdoor: poverty. It is so simple. Force people to join the army, navy and marines.

The US government is presently the world's only superpower and global policeman. With that responsibility, the US needs to double, if not - triple, its current level of deployable troops. (Leave out the National Guard numbers.) As long as no other country is willing to help shoulder the global responsibility of peace, the US will face that task at an enormous cost to itself and its citizens.

So, Professor Krugman, please rewrite your op-ed to consider what I have just written.

Enrique R. Arzac: Valuation for Mergers

Finally, my book order from Amazon arrived yesterday. I ordered Arzac's book, "Valuation for Mergers, Buyouts, and Restructuring" back in the middle of February. Stupid me - I did not ask for it to be shipped pdq. Took three weeks to get here. Darn.

Anyway, I took a look at the table of contents and really like the way the book is set up. I know that I can use the book and his toolkits to great use. Now, I have to spend the next few months reviewing all the chapters that are of interest to me and play around with the included templates. Going to copy them to both my Sony and Apple laptops just in case.

I noticed that Arzac teaches courses at LBS. I'll try to save up some money and fly myself out to London to attend his classes. I need some serious 'knowledge upgrades' and look forward to studying with some peers in finance and economics.

BRIC: 2020

Last year, I read an economic analysis and forecast that stated the future/eventual economic power of BRIC (Brazil, Russia, India and China). These four countries will one day become a very powerful economic bloc. The shere population sizes of BIC should give pause to many economists. No matter how much further the US or Japan are in technological terms, the current G-2 cannot match the number of people consuming in BIC. For example, China's per capita income is roughly 1/35 that of the USA.  If over the next ten years, the Chinese per capita income rises 5% per year, it will quickly knock a few of the present members of G-7 down and off the list of the richest nations in the world.

Should the USA and Japan wish to remain the G-2, both countries had better start cranking up their baby-factories. Both are facing a growing gray population. What we need now are laws that promote and encourage more babies being born.

How will Canada fit in the new world? If the Canadian government can past it own shortcomings, it must address these issues: (1) low birth rates, (2) university graduates leaving the country - just look at me, (3) rising unemployment, (4) constant struggle with keeping Quebec engaged in dialogue, (5) economic disparity between the 'have' and 'have not' provinces and territories, (6) our economic dependence on the USA,  (7) lack of military power, and (8) immigration policies.

Canada needs to grow its population fast. We need to set numerical targets over the next 25 years. For starters, here are my suggestions. By the year 2010, Canada needs to reach 40 million. By 2015, 50 million. By 2020, 75 million. And five years later, 100 million. Finally, in 2025, there needs to be some 125 million people living in Canada.

I'd love to see the province of Saskatchewan with a solid population base of 25 million by 2025. I believe there are roughly 1M people in the province today. Surely, there is enough room in the province to see the population explode 25X. If you have ever been to Saskatchewan, you know there is more than enough space to house 25M people.

So, if the Conservative Party is willing to fly me back home and throw their support behind me, I'd be happy to run on a 'platform of growing the country to 125M in 20 years'. Not too sure if Pete or Stephen would take me up on my offer, nevertheless it is now on the table.

US Social Security: Headed for Bankruptcy??

Read an interesting analysis at FactCheck.org and check the numbers. Better yet, read about the 'clawback' and the fact that your personal account is 'NOT' really your PERSONAL ACCOUNT. (If your personal account is not your 'personal' account, then what is it???)

After reading the analysis, I am not sure whether I should 'buy' the dollar; 'short' the dollar, or 'sell all my investments' and join the circus. If the GOP plans of 'dissolving the social security system (aka 'the welfare state') succeeds, how many 'homeless' people can we expect to see wandering the streets of California? DC? New York? Will the USA become a third world nation? And if it does, will the future leaders of the USA invade Canuckland and steal our oil? Water? Diamonds? Gold? Hockey players? I sure hope the current and future Prime Ministers of Canada start dumping large amounts of loonies at building up our military forces. Cuz there is no way in hell that we can stop 150M starving people from crossing the border into our paradise of CanuckerRUs.

(FactCheck.org)

China Yuan Devaluation

Sorry, but it isn't going to happen at anytime soon. The US may want China to 'give in to US pressures' and thus, help the US with its trade deficit with the Middle Kingdom. However, China needs to keep it currency stable in the near term as it tries to 'yank' more and more of its country into the 21st (market-based) Century. If the CCP capitulates and lets the yuan float, you can probably bet that many Chinese state-owned enterprises (SOEs) will be forced into real bankruptcy. Thus, ushering in short period of political unrest and uneconomic uncertainty. Now, there is no way the CCP is willing to entertain any notion of letting its people get unhapy. So, don't expect any devaluation of the yuan soon.

If I were a betting man, I can the Chinese government pegging their currency to a 'basket of currencies'. A basket containing (1) three yankee bucks, (2) four Euros, (3) two British Sterling, and (4) five Aussie dollars.

(Financial Times: Greenspan Speaks)

Donald Luskin: Is he really that "Stu**d"?

I have chosen not to fill in the missing letters in the word in the title of this blog. Lest I want to be at the receiving end of some wrath from a 'Stu**d' guy. Anyway, if Brad DeLong is right, Mr. Luskin is surely on some very good medication or perhaps something else. What he may be on, I don't know. I can only speculate. Brad makes a strong case for why the quasi-economists in the White House have got their 'fingers jammed inside their calculators'. With all those fat fingers jammed in their keypads, there is no wondering why they are trying to pull the "wool over the taxpayers' eyes" in this so-called "Social Security Crisis".

By the way, who is D. Luskin? Never heard of the guy before. Did he win some prize that I have not heard of before? Was it some award for being the smartest guy in the classroom? Don't know, don't care.

(Brad DeLong takes another wack at a QU**K!"

HBS: Alternative methods for estimating terminal value

Just downloaded a case study from HBS titled, "Note on Alternative Methods for Estimating Terminal Value". I've been pondering the very notion that a person can and should value a 'business project' as having an infinite life. Thus, the cash flows will continue into perpetuity. Not sure if doing terminal value calculations for an infinite series of cash flows seems reasonable. Wouldn't it be more prudent to run models for, let's say, 25-40 years? I mean how many companies are there in the world that still exist after 40 years? Excluding companies that started as state monopolies, does anyone have that number handy?

Oh, the HBS case number is 9-2980166. If you get a chance, read it. It very enlightening.

JPN Yen-US$ Forex: How far will it move?

Do my eyes deceive me? Did the US dollar fall to 102 to the Japanese yen in yesterday's trading (19 Nov 2004)? While many will blame GW and his demand for more tax cuts for the well off for the falling dollar, I think there are many more problems with the US dollar than just GW's policies. For starters, are Americans living their means?

Loonie vs Greenback: Forex

Are my eyes deceiving me? Is the Loonie gaining strength versus the Greenback? It incredible that the Loonie is above the 1.19 mark. With so much pressure coming down upon the US buck due to its twin deficits and no forseeable solution to its fiscal irresponsibility, the global currencies can expect to continue rising another 5-10% highly against the Greenback. I'll yell out for joy when the day finally comes when the Loonie and Greenback trade at par. Perhaps with the falling Greenback, many Canucks will begin buying up US treasurys and securities. Hopefully, in 5-10 years, we Canuckers will own enough of the USA and demand that those people living in heavily Democratic and swing states be allowed to leave the USA and join Canuckland. For all those thoughts about the USA annexing Canada, perhaps it is WE who will begin annexing much of the USA! Now that would be something lovely to see within our lifetimes. Yes, indeed - lovely indeed.

U.S. Billionaires: No longer an exclusive club

Over 300 people are listed as Billionaires at Forbes. I would like to one day see a list of trillionaires - now, that would be something exciting to write about, wouldn't it!

Quoted passage from news article:

There are now 313 billionaires in America, up from 262 counted last year; it's the largest number of billionaires ever on the list, the magazine said.

Do you think being a billionarie changes a person??

Sell US Dollar, Buy Japanese Yen

Do it fast! I return to my earlier predictions that the US greenback is headed downward. There is so much pressure on the dollar that it has only one place to go: down below 90 yen to the dollar. I don't even want to think of how far the greenback will fall against the Euro. Yikes! I can see US manufacturers loving a weaker buck but businesses that depend on a stronger buck will be screaming 'bloody murder' on all business news programs once it hits rock bottom.

(CBS Market Watch.)

I had better move all of my assets out of the US dollar and put them into Euro-denominated assets and Asian currency basket-assets.

Just hang on a minute: What about moving all my assets into GOLD??? I wonder how many gold bricks I can carry out of the bank and stuff them under my pillow???

Labour Economics: Overtime Labour

Never heard of the monster. Although spending more than four months listening to my econ professor talk about funny concepts/trade-offs between 'leisure' and 'labour', I was left with the notion that people can actually choose between the two. Perhaps in some unreal world, people can choose but in the world in which I currently live, no such trade off exists. Either you work or you jump in front of a speeding train. It is that simple.

Also, the concept of overtime pay for work in excess of the labour standards sounds like a wonderful gift from the government but, it is not the government that pays people in the private sector. As such, overtime pay does not exist for many of us. I don't even know what OT means.

I figure that if I work, like so many others in Japan, at least a 60-70 hour week, I might be able to keep my job. anything less than that I may as well make a reservation on the nearest train platform and wait for my turn to jump in front of a train. Nowadays, I think that JR (national train company) probably has a reservation book for all those people who want to end their lives.

In my estimation, I guess that for each year I remain employed at the same company, a worker must add an additional 5 hours per week to his work load. So, if one has been working at the same company for the past five years, he must put in at least 60 hours a week. Now, if one were working for the same company for the past ten years, you would have that poor soul working at least 100 hours a week.

Whenever I read funny stories in the US media or press about 'Overtime pay' or 'Overtime hours', I laugh. Does anyone today really believe workers have bargaining power with company management??? If they do, they must be some recent graduate from business school. For in the real world, labour has no bargaining power left. This is the exact outcome that government has wanted to achieve over the past 20 years.

(CNN.)

Job Growth or Job Loss?

Krugman takes a deeper look into the recent job growth, or lack thereof, in the US. While 32,000 new jobs may not seem a whole heck of a lot, it still is 32,000 jobs more than we had a month ago. Also, we must remember that for the 32,000 people who got a job, it means a great deal to them.

Oil Crisis: $75 per bbl??? Higher??? Most Likely!

What's going to happen when crude oil hits $75 per bbl?? Are we going to invade a few more oil-producing countries in the Middle East and take over their oil fields? If not, why not? I suspect there are factions within Western governments who have operational plans tucked away somewhere for such a scenario. Now, I wonder whether anyone will come into Alberta and seize control of the tar sands.

Excerpt Begins

Late in the trading day Wednesday, the Organization of Petroleum Exporting Countries tried to reassure the global market that it was doing all it could to help lower prices, saying it could boost output immediately. But analysts said those comments were largely discounted, since they had already been factored into the market.

Excerpt Ends

I don't really think that OPEC really cares how much consumers have to pay for the price of a litre/gallon of petrol in the West. If it were up to OPEC, I'm sure they would shut off the pumps for a couple of months just to prove that THEY are in control and not the West.

(NY Times)

EMH: What's the Story??

I remember studying EMH in my corporate finance classes and not really putting much faith in it. When one of my former colleagues was working on his MBA, we talked about EMH and he argued that the markets were efficient. Not to rain on his parade, I let him believe that what his business school profs were teaching was correct.

(Professor Brad DeLong's Blog)

OPEC: Oil Hike in June??

I am sure glad that I do not own an automobile. I heard on television that some people in the USA are paying upwards around $2.75 for a gallon of gasoline. Gasoline prices are heading up here in Japan, too. As long as I can commute to work by train, I don't really care how much oil prices go up.

Excerpt Begins

Record gasoline prices are vexing American consumers, and have spiraled into a key campaign issue for President Bush. Abraham said he sees as "positive" word that OPEC was discussing increasing quotas.

Excerpt Ends

(CNN.)

Crude Oil Nearly Hits $40

Let the free markets determine the price of crude. With rising demands and lower supplies, the world had better brace itself for crude to hit $50 in the near term. While many people will send protest messages to their local congressman/woman, they should realize that if Congress wants to have a positive impact on the price of oil, perhaps it should look at creating more incentives to reduce gasoline consumption. Or perhaps, the government should look at ways to wean the US consumer away from using their cars so much. By the way, whatever happened to car-pooling??

With people less inclined to jump on an aeroplane to venture off on their next vacation due to security concerns, we can expect more families to do their holidaying via their gas-guzzling automobiles. People who drive smaller compact autos may lob a few jibes or criticisms at SUV-owners, they should look at themselves, too.

Anyone who drives an automobile is to blame for the rising demand in gasoline. Regardless on the type of vehicle one drives to and fro, each driver is adding to the problem of rising crude oil prices. People should be asking the government for real solutions to lowering the dependency on oil and not on finding ways to force OPEC to increase production. What the world does not need now is the release of more crude oil but a move away from fossil fuels consumption.

Big metro areas need more mass transportation systems and fewer freeways. Mass transit rail lines may not add beauty to the major metro areas but at least we will not be polluting the air for the next generation of humans who inhabit their planet.

We need more conservation and less consumption.

(CBS Market Watch.)

US Interest Rates: Heading Sky High??

If Professor Krugman's analysis is correct, the US is headed into a period of increasing interest rates. (Read his NY Times column.) Here's an excerpt from the column.

Excerpt Begins

My calculations keep leading me to a 10-year bond rate of 7 percent, and a mortgage rate of 8.5 percent — with a substantial possibility that the numbers will be even higher. Current rates are about 4.3 and 5.8 percent, respectively; you can see why the I.M.F. is worried about "financial market disruption."

Excerpt Ends

Part of the excerpt gives me serious pause . . . "a substantial possibility that the numbers will be even higher." As everyone knows, the US is spending and living beyond its means. The US government is financing its current expenditures by mortgaging off its children's future by selling billions and trillions of US debt to foreign nations. I believe that Japan alone holds some $650B+ in US treasurys. For the life of me, I don't know why Japan wants to hold onto that level of greenbacks. I, for one, would like to see that Koizumi government start a slow and systematic dilution of its foreign currency reserves. Japan does not need to hold onto more than half a trillion dollars.

Of course, one of the problems of foreign nations selling off their holdings of US treasurys will be a massive increase to US interest rates in order to attract much needed capital to finance the current budget. And, with higher interest rates, the government 'crowds out' private companies seeking capital investment.

I guess the US government has some serious problems ahead. I don't think the problems associated with its current situation within Iraq comes close to the level of problems and the amount of pain that its twin deficits will cause the country in the months, years and decades to come.

I wonder if the Japanese are still interesting in purchasing the state of Hawaii?? And what about the state of California?? Would the US be willing to sell those two states to Japan in order to pay off some of its national debt??

Who's to say that in the year 2020 and beyond that countries won't need to sell off parts of itself in order to generate much needed revenues??

Yen-US$ Forex Level

The yen just broke the 105 yen/$US barrier. It went as high as 104.60 yen this morning. At this rate, the yen should crack the parity level before the beginning of summer. Many people in the forex markets speculate that the MoF has given up (for now) their massive foreign currency interventions. I even read somewhere on the internet that John Kerry, Democratic-nominee for the upcoming election, has weighed in on the problems of Japanese intervention in the markets. I don't suspect that Kerry's remarks have influenced the boys at the MoF one little bit.

So, the recent non-interventionist stance sure has me thinking: Are the MoF boys planning on sitting on the side lines and waiting until after the summer to intervene? Or have they signaled the end of massive interventions to Japanese manufacturers and Nippon Keidandren? The Japan Federation of Business Leaders have often publicly stated that they desire a forex level of 115 or lower in order to give companies time to adjust to a new world economy of a stronger yen (AGAIN!).

At this rate of fall for the dollar, I should pull out my US$ Amex card and begin using it again. The last time I think I used the card was when the yen was strong and getting stronger.

(Excerpt from Nikkei News)

TOKYO (Kyodo)--The U.S. dollar fell below 105 yen to hit a 45-month low against the Japanese currency Wednesday morning in Tokyo on speculation that Japanese monetary authorities have halted their massive dollar-buying interventions, dealers said.

(More news: Reuters.com)

107.17 Yen to US$: Hooray!

I cannot believe the markets are driving the US$ down and the JPN Yen up! Gee, I never thought it could happen so quickly. I guess the MoF and the BOJ have their hands tied behind their backs right now. I hope the forex markets continue driving the yen up towards parity by the end of the quarter. With any luck, we might see the yen rise to the dreaded 100 yen level before the end of the year. If the greenback drops that low that fast, I'll plan a winter getaway to Hawaii for Christmas.

Forex: Dollar Dives 1 Yen In Tokyo, Threatens To Fall Into 106 Yen Level

TOKYO (Kyodo)--The U.S. dollar dived by a full yen to a one-month low Thursday morning in Tokyo, threatening to fall into the 106 yen range as the market tested Japanese monetary authorities' resolve to halt the dollar's decline.

At noon, the dollar was quoted at 107.14-16 yen against Wednesday's 5 p.m. quotes of 108.20-30 yen in New York and 108.26-28 yen in Tokyo.

The U.S. currency moved between 107.11 yen and 108.36 yen during the morning. The morning low was the lowest in Tokyo since Feb. 20.

(Rest of the story can be found at Nikkei.co.jp - subscription required.)

Endaka: Japanese Yen Surging Again

Climb Baby Climb! Go Baby Go! I am so happy to see the yen rise above the 108.50 range. I expect it to break the 107.75 level in the very near future. Yeah! Let's see how much the BOJ and the MOF will take before the next wave of forex intervention. Will we see a 105 yen-US$ before the end of the year?

Richard Werner: Special to The Daily Yomiuri

Very well written article by Richard Werner. He offers a quick look at how Japan is 'dining on a trough' full of US greenbacks. This growing diet of US dollars either is a smart move by the government or a very unwise decision by the government.

Unfortunately the Daily Yomiuri does not provide constant access to the article, so I have copied it here. If you have time, check out the web site quickly because Yomiuri rotates the articles off the site very soon.

Princes of the Yen - A 'must' read if you want to understand Japan and what is happening to the country.

BUSINESS INSIDE / Currency intervention waste of Japanese resources

Richard Werner / Special to The Daily Yomiuri

Last year, the Japanese government spent 20 trillion yen worth of taxpayers' money on buying U.S. Treasury bonds. This was the biggest annual amount of official purchases of foreign currency assets by any country in history. Since then, the Japanese appetite for U.S. government debt has really increased--this January alone, the government bought more than 7 trillion yen (about 68 billion dollars) worth of U.S. dollar assets, almost half of which was spent on Treasuries, breaking all records for such purchases during any one month.

As a result of these investments, the Japanese government has become the single most important buyer of newly issued U.S. government debt.

Some would argue that buying U.S. Treasuries may be a justifiable investment. Unlike stock investors, buyers of government bonds who hold on to the paper until maturity should not lose any money--assuming the government does not default. It is certainly true that among the many assets available, U.S. Treasuries are a viable option for any investor, including governments. But this argument assumes that the Japanese government had the money in the first place. While the Singapore government or the government of the Principality of Liechtenstein may have no national debt, the same does not hold true for Japan.

Admittedly, Japan is a rich country and its gross domestic product is second only to that of the United States. But the Japanese national debt is not far behind the U.S. debt and the Japanese debt-income ratio is higher than that of the United States.

But does the Japanese government not own a lot of assets--the largest foreign exchange reserves in the world, to be precise? True. But these are almost entirely held in the said U.S. Treasuries. Thus it does not make sense to use these foreign exchange reserves to purchase U.S. Treasuries: If that was desired, no new purchases would be necessary, and the government would be happy with the vast stockpile already in its possession. Apparently it is not.

But if the Japanese government cannot use its foreign exchange reserves to buy U.S. Treasuries, how else can it pay for them? After all, for the better part of the past decade tax revenues have been far smaller than government expenditures. The ensuing fiscal deficits have increased national debt to record amounts.

The answer is that the Japanese government has been borrowing money in order to lend it to the U.S. government. Let's get this clear: Japan's government issues debt, such as government bonds, so that it can purchase the government bonds issued by the United States. This raises a few questions. For instance: Does the Japanese government really need to buy more U.S. Treasuries, despite already owning the world's single biggest pile of them? Does it really make sense to borrow money, just to lend the money to another country that needs to borrow?

Here is how the experts have explained events to us in the media: The Japanese government is borrowing money to buy the debts of the U.S. government, because this will weaken the Japanese currency, and that is a good thing for Japan's economy. That's apparently why the International Monetary Fund's Managing Director Horst Koehler, since then elevated to president-elect of Germany, has praised Japan for its actions.

We can quickly test whether this story is true by simply verifying whether such official purchases of U.S. Treasuries have indeed weakened the yen.

There is no such evidence. In 1994, Japan conducted official foreign exchange intervention of more than 30 billion dollars. The yen strengthened to a record high of 79.75 yen per dollar by April 1995. In 1999, Japan set a new world record in official currency intervention, spending more than 50 billion dollars on weakening the yen. The yen responded by strengthening almost 20 percent by the end of that year. The government has remained the sole competitor in the increasingly frantic bid to break its previous records in currency intervention. Despite the foreign exchange intervention of about 200 billion dollars in 2003 and the first few weeks of this year, the yen rose from about 120 yen per dollar to 105 yen.

There is no empirical evidence that the Japanese government is buying U.S Treasuries to weaken the yen--quite the opposite. Also, it is not clear that a weaker yen would actually stimulate the economy, as it makes the badly needed imports of raw materials and intermediary inputs more expensive. Remember, Japan even runs a trade surplus with China.

Instead of holding a world record of 777 billion dollars in foreign exchange assets, mostly in the form of U.S. government debt, the Japanese government could sell them and use the proceeds to pay back some of its own record-breaking debt mountain, or stop issuing new debt--Japanese foreign exchange reserves currently amount to about 86 trillion yen, which should pay for the annual budget deficit.

Yet, the policy of buying U.S. Treasuries must have some beneficiaries, otherwise it would probably not have been adopted.

It certainly has helped the U.S. government. The Japanese purchases of U.S. Treasuries in 2003 were almost enough to fund half of the U.S. government's annual fiscal deficit. Thanks to loyal Japanese support, the U.S. administration has been able to handle its rapidly expanding fiscal deficit with ease, ballooning military and paramilitary costs of running its empire notwithstanding.

What is harder to understand is why Japan, which has the highest debt-GDP ratio among industrialized countries, should go further into debt, just so that the already profligate U.S. government can fund its growing indebtedness. In effect, Japanese taxpayers, already suffering from over a decade of recession, a collapsing pension system and record national debt, are being asked to also shoulder the debts of the U.S. government. It may be convenient for the U.S. military-industrial complex to obtain such generous funding from Japan.

But is it in the Japanese interest? I think taxpayers have a right to demand that their money is spent more wisely and in their best interest.

Werner is an investment strategist and fund manager. He is author of "Princes of the Yen: Japan's Central Bankers and the Transformation of the Economy" (M. E. Sharpe, 2003). Werner can be reached at werner@profitfund.com

Nortel CFO and Controller Put on Paid Leave

As an investor in Nortel, the news does not please me one little bit. But, I guess that the company is doing its best to put its 'house' in order - this is a good thing! Looks like many investors are getting cold feet as shares dropped 19% on the news. I'll hang onto my shares and give Mr Dunn some more time to fix the company. Hopefully, he knows what he is doing.

(CFO.com)

China vows to reduce growth of economy

I was a bit surprised to read this headline on the front page of an English daily here in Japan. In an article written by Joseph Kahn for The New York Times, he writes of the problems of a runaway growth economy within the country is having on the much poorer rural areas. Much of the growth of the Middle Kingdom is located near large urban centres and coastal regions. It should go without saying that like many nations, most of the richer zones of any country are near major waterways. According to the article, some 800 million people live outside cities.

What this means is that there are some 400 million people within China who receive direct benefits from a growing country. I guess it is up to these well-off people to send money and jobs back into the 'hinterlands'. Okay, here are some interesting points to consider now. If the PRC government deems it is necessary to send money, jobs and development to those regions, how much strain will this place on the world's resources? How much more cement, steel and oil will China devour and consume? These 800 million people represent a huge marketplace for any international company seeking to bring its products and services to new segments.

(Joseph Kahn: NY Times)

Japan's Forex Reserves: $777B

Yup. That's $777,000,000,000 of hard cold US bucks that Japan is holding. As everyone knows, the Japanese have been buying the greenback in order to keep the buck above the 110 yen rate. With so much US currency in control of the Japanese government, does this grant it future leverage over its partnership? If not, why not? Everyone keeps on harping on the need for the Japanese manufacturers to operate in an economic world where it can continue to export its wares abroad. Since Japan is still primarily an export-driven economy, the need for a weaker yen or conversely, a stronger yen, one must question the long term effects of such a monetary policy.

(Japan Times.)

Labour Stats: Paul Krugman

Professor Krugman, in his op-ed for the NY Times, reminds us of how labour statistics can be misread. I remember in my labour economics class at university where we learned about how unemployment/employment stats were compiled. In a nutshell here it is: a person is counted as unemployed if he/she is actively engaged in finding gainful employment. So, what does this mean? How is this translated? Well, if one is not 'gainfully employed' and remains at home and not out in the labour markets looking for employment, he/she is NOT considered or counted as being 'UNEMPLOYED'. I remember hearing my professor say that 'crazy definition'. In the class, a student asked the foolish question (he beat me by a fraction of a section), 'If I don't have a job and don't look for work, I am not unemployed?' - to which the professor answered in the affirmative.

Who said economics is logical???

Forex volatility worries G-7

On the front page of the newspaper today, the Japanese press are focused on the talks between the Finance Ministers in Boca Raton, Fla. The U.S. position wants forex rates determined by market forces. (The US does not want any government entering the markets and intervening to prop up one's own currency.) The Japanese wants stable foreign exchange rates. (The Japanese does not want the US dollar to continue its fall.) The Japanese government has been 'dumping' Yen and buying dollars like there is 'no tomorrow' and has since amassed truckloads of greenbacks. It is unbelievable the amount of forex reserves Japan possesses. At this rate, the Bank of Japan should be renamed as "Federal Reserve Tokyo Board". With the BoJ holding so many dollars the question on the top of my mind is 'What does the BoJ plan on doing?"

Do Deficits Matter? That depends...

That depends on who is answering the question. If you are the one who ends up paying for the deficits [the future generation of children], then 'YES' - deficits do matter. And if you have no children, no legal heirs, no money in the bank, no care in the world, then 'NO' - deficits do NOT matter. (CNN Money.) If the deficits become so bad and unmanageable, I am sure the US could sell Hawaii to some Japanese company or at the very least I am sure Canada wouldn't mind purchasing the state of Alaska.

Cost of Higher Education

In this week's issue of The Economist, January 24th 2004, the special report - "Financing Universities" [Who pays to study?] made me think about how much I have spent on schooling since high school. If higher education is to be effective, I believe students/parents must pay for that right to an education. If the government is going to give it away for free, the tax burden on childless couples is unfair. (The Economist)

I remember when I arrived in Japan and began meeting people from all over the world. Imagine to my great surprise that many of the university graduates from the UK and elsewhere did not have to pay much money, if any, for their tuition. I was utterly speechless. My undergraduate degree cost me a small fortune as I had to finance my education via Canada Student Loans and provincial loans. My loans were so high that I elected to repay the loan amount over a 10-year period. Luckily, I paid it off by the end of the 5th year. (I'll leave out the cost of obtaining my graduate degrees here - just thinking about the money makes my head spin.)

I don't think attending university should bankrupt anyone but, I believe giving away education for 'free' is a bad idea. If people can not afford tuition, then students should be made to maintain a certain level of academic standing for the privilege of 'getting a free ride' for four years. Heck, here is another idea: why not make graduates under this very generous program donate 10% of their net earnings back into a fund for a period of 5 years? Or what about graduates working for 2-3 years as volunteers in developing nations?

Falling US Dollar

I don't suppose the US dollar will get stronger until after the Presidential Elections. With the JPN YN trading at 106.17 to the greenback, I imagine that the boys at the BOJ (Bank of Japan) are thinking of more ways to manipulate the yen-us $ forex rate. With the weekly purchases of the greenback, there has been no movement in the forex level. The BOJ, I think, would like to see the yen trade at or above the 115 level. Well, that's not going to be happening at anytime this year or next. The US government can ill afford to let their dollar gain any real movement before the end of the year. I suspect this is due partially to politics as Bush needs US businesses to sell more abroad. Unfortunately, such tactics will not prove effective. With looming deficits, the US faces the prospects of an inflationary period in the very near term. In order to attract the needed capital to fund its current budgetary expenditures, the government will need to raise its interest rates. I would not be surprised if future interests rates hit double digits within the next 3-5 years.

CFA Level I - December 2004 Exam Registration Opens

Guess it's time to begin filling out the forms to register for the December 2004 Level I examination. I had considered waiting to sit the exam in June 2005 but have decided not to waste 6 months of my life sitting around and doing nothing. Gotta keep the brain going and feeding it with new info. (CFA.) The initial deadline for registration is mid-March. After this date, applicants have to pay an increased fee to sit the examination.

Corporate Finance Staff Burnout

Tips from CFO.com. It is the first business week of the new year and I am already burnt out!!! (CFO.com)