Monday, October 31, 2011

Globalization: Welcome, Number Seven Billion!

The population of the world is growing. Today we reached the mark of seven billion human beings, guesses the United Nations. By the year 2100 this number should climb to ten billion, expects the organization. A reason to cheer?

Many commentators are complaining that the growing number of humans causes problems to feed them. They claim that the rising demand for food, oil, metals and other commodities causes scarcities and maybe famines and wars.

This reminds me to Thomas Robert Malthus (wikipedia). The English social philosopher and Anglican clergyman, who lived from 1766 till 1834, warned about the dangers of population growth. He predicted that population will grow faster than the production of food and other commodities, leading to famines and a shrinking quality of life for the masses ("The power of population is indefinitely greater than the power in the earth to produce subsistence for man"). Malthus is a long time dead and his pessimistic predictions didn´t realize, but his ideas still live like zombies. 

The pessimists don´t get it, that the wealth of the world is rising continuously, faster than the population. Around the year 1800 the world population reached just the number of one billion, by 1960 it climbed to three billion people. But we didn`t get poorer since then! Quite the opposite:  The wealth per capita climbed and people in Europe, U.S., Japan & Australia, the so-called Western World, are much more wealthier than one hundred years ago. And: Countries like China, Brazil and India, the so-called emerging markets, started the run to catch up very fast.

The explosion of population was overtrumped by an explosion of wealth, thanks to the steeply rising productivity. This is the result of the technical progress and the learning process. People learn to get better & better every day and companies learn how to produce goods & services more efficient, with leads to lower costs. Today workers worldwide produce much more goods & services per working hour than decades ago. Since centuries farmers are expanding their crops, because they use better seeds and better methods for planting, plowing and harvesting. Take for instance the global grain production which increased by roughly two per cent a year from 1950 to 1990 (green revolution).

These efficiency gains should continue, maybe even accelerate with the help of rapidly developing  computers and software and the progress in other sciences. For instance the U.S. is now boosting oil & gas productions, thanks to the technical progress in discovering & tapping the vast resources. There is also a lot of progress in genetic engineering which should guarantee a much larger food production.

The growing world population offers a huge chance because it will boost the markets for companies in Europe & U.S. Rising exports and income from foreign markets will help ripe nations like Japan and Germany where the population is stagnating. The income from the world markets could finance the retirement of the masses in countries where the average age is climbing.

Welcome No. 7 billion.

Saturday, October 29, 2011

Economy: Think Global

Last week we learned that the U.S. accelerated its economic expansion in the Q3, which might have disappointed some pessimists. The GDP (a gauge for the national income) grew 2,5%, thanks to growing consumer expenditures and rising capital spending (investments) from the companies. And there was a third growth engine: Exports jumped 4% (plus 3,6% in Q3).

It looks like America is benefitting more & more from the growth of the global economy, especially in Asia & Latin America. The Chinese economy is expanding with a pace of around 9% and the Chinese need therefore more machines & consumer goods from the U.S. and from Europa. Other countries like India, Russia, Brazil and Turkey also show high economic growth rates and more appetite for imported goods & services. Shipments to foreign countries, especially to emerging markets, are helping a lot of U.S. and European companies override the weakness in their home markets.

“The global economy is growing, and the American companies that can tap into that broader economy can still post satisfactory results,” said Adolfo Laurenti, deputy chief economist at Mesirow Financial Inc., according to Bloomberg.

Take for instance Caterpillar, the world’s largest construction and mining-equipment maker. They reported that last quarter their profit jumped 44% compared to last year, and that revenues soared 41% and reached a new record. Bloomberg wrote that the numbers were boosted by advancing sales in China & Latin America.

Likewise, last week, Rory Read, the CEO of the semiconductor maker Advanced Micro Devices,  presented better-than-expected quarterly profits and a positive fourth-quarter outlook. "We saw double digit revenue and unit shipment growth in emerging markets like China and India", he explained.

Other companies like General Electric (power generators and more), DuPont (chemicals), Boeing, Honeywell (aerospace & chemicals) and McDonald´s also reported strong Q3-numbers and solid growth. These multinational corporations are benfitting from growth in their oversea markets, especially in Asia. Even European companies like Volkswagen show strong growth rates in spite of the weak European economies, thanks to the growth in the emerging markets in Asia & Latin America.

But Apple might be the largest beneficiary of the global growth. The Wall Street Journal Blog "All Things Digital" ( ) reported that Apple`s sales in the Asia Pacific region are rising to $14.3 billion during 2011. That’s an increase of 174%. To further visualize the change, realize that in 2010 the Asia Pacific segment represented just 13 percent of Apple’s total net sales and increased to 21% in 2011.

Apple CEO Tim Cook said recently, that the company’s prospects in China are very strong right now. “In my lifetime I’ve never seen a country with as many people rising into the middle class aspiring to buy products that Apple makes”.

Think global.

Thursday, October 27, 2011

Economy: The Consumers Are Back

The U.S. economy, measured by the GDP (Gross Domestic Product, a gauge for the national income) grew 2,5% last quarter, faster than in the 2. quarter (plus 1,3%). The growth was fueled by higher consumer expenditures. Household purchases, the biggest part of the economy, increased at a more-than-projected 2.4% pace, Bloomberg reported. The increase in consumer spending last quarter followed a 0.7% gain in the second quarter and exceeded the 1.9 percent median forecast in a Bloomberg Survey. These purchases added 1.7% points to the growth number. Business investment (that is corporate spending on equipment and software) climbed at a 17.4% pace, the most in a year. It contributed 1.2% point to growth.

These numbers aren`t surprising. They fit to the strong retail sales numbers I wrote about recently (how-us-consumers-save-world). The new data confirm that the consumers are the engine of the U.S. economy. People are still optimistic instead of the perpetual negative news drum in the media. I guess this has a tradition in the U.S., maybe a heritage to the pioneer ancestors.

As long as the U.S. consumers are willing to expand their purchases the majority of the companies will flourish  and will overcome the problems in other parts of the U.S., such as the struggling financial sector or shrinking government expenditures.

Tuesday, October 25, 2011

Movies: Margaret

How would you feel if you were in involved in an fatal accident? How would you react if this event was partially caused by your behavior? This is the story of "Margaret". The movie (directed by Kenneth Lonergan) narrates how the life of a 17 year old girl changed after a shocking event  ( ). The main character is an unsure girl who explores her relationships with adults and her sexuality. After the accident her behavior gets even more unbalanced.

The low-budget film has an impressive cast: Matt Damon, Allison Janney, Jean Reno & Mark Ruffalo. But I was particularly impressed by Anna Paquin. The actress, who was around 25 while shooting this flick, accurately incarnated this 17 year old troubled girl. You could read even the juvenile insecurity and her growing disturbance in her face.

Margaret is a gripping and sometimes disturbing story. It`s  worth watching but the 150 minutes running time need a lot of patience.

Monday, October 24, 2011

Economy: What Caterpillar Wants To Tell Us

If we believe the media the world is in a mess and we are on the brink of a new global recession. But the companies, which are now reporting their business numbers from the 3. quarter, are sending us a very different message.

Take of instance Caterpillar. The world’s largest construction and mining-equipment maker is a gauge for the global economy. This morning the industrial giant reported strong numbers: Profit jumped 44% compared to last year, revenues soared 41% and reached a new record. The multinational corporation also lifted its profit guidance for the whole year.

"This was the best quarter for sales in our history, and our order backlog is at an all-time high," said Chairman and Chief Executive Officer Doug Oberhelman, in a press statement. "Although there is a good deal of economic and political uncertainty...we are not seeing it much," he added. Caterpillar management expects that the world economy will grow 3% in 2011 and 3.5% in 2012.

Sunday, October 23, 2011

Economy: Bye, Bye Recession

Last week brought another deluge of news from the economic front. Their message was clear: The economic picture in the U.S. is getting brighter and the next recession is far away.

1. Manufacturing, which showed week spots in summer, seems to reaccelerate. Industrial production increased 0.2% in September and was 3.2% above its year-earlier level.

And the Philadelphia Federal Reserve reported that its manufacturing index ( a gauge of factory activity in the northeast U.S.) jumped to plus 8.7 in October (September minus  17.5 ), signaling growth in the region’s factories for the first time in three months.

2. The U.S. housing market also indicates some improvements. Total housing starts in September were 15.0% higher than in August. Most of the increase was for multi-family starts (department houses).

3. The job market continued its slow healing process. The number of weekly jobless claims sank to 403,000 (previous week 409,000). The 4 week average also dropped to 403,000, the lowest number since April. In the recession 2008/09 these numbers jumped above 600,000.

4. The positive economic picture got underlined by the companies which are now reporting their profit & revenues from the third quarter. Especially encouraging data came from CSX. As a carrier of consumer goods and raw material the railroad operator depends strongly upon economic development. In Q3 their revenues jumped 11% compared to last year with improved sales across most of the railroad's major markets. Michael Ward, the CEO of CSX, told the media “We are a good barometer of the economy and we did see some uptick in September”. ( ) He continued: “It’s a normal fall peak where retailers are stocking the stores for the Christmas time…We do expect continued growth, not robust but modest, in the coming quarters.”

The stock market (S&P 500) reacted hesitantly and gained just 1% last week. Many market participants are still focusing on the European misery. But there is a high probability that the healing U.S. economy and the still strong growth in China and other emerging markets will rekindle the European exports and stabilize the ailing economies in Europe. These developments could lead to further rising stock prices.

Friday, October 21, 2011

Books: "How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom", by Garry Kasparov

Life is ruled by strategies. Our future depends on the decisions we make today and the present is shaped by moves from the past. It`s almost like chess, but much more complicated. Therefore I enjoyed the book "How Life Imitates Chess: Making the Right Moves, from the Board to the Boardroom", by Garry Kasparov (first edition 2007 The former world champion in chess (from 1985 until 2000) writes about his career and chess, but also about strategies in business, politics, military and daily life, therefore about "strategy and the art of living", the title of the German edition (Garri Kasparow: Strategie und die Kunst zu leben

The book is very smart and intriguingly written, as you can expect from a long time world champion in this smart game. Kasparov`s writing shows the stringency he needed to rule the game such a long time. The Russian master describes how he discovered his own weaknesses, and how he learned to delete or at least to alter them and to gain strength. He concluded that to be successful one had to ask "why" things happen. This separates the strategist from the tactician, who just reacts (maneuvers). The successful strategist uses his  knowledge about the nature of people to predict the strategies of the enemy and to counteract.

One of the strengths of the book is that the author uses a lot of historical examples from politics, military and business. Kasparov describes how politicians like Clinton, Churchill, Bismarck or entrepreneurs like Boeing, Watson (IBM) and Welch (General Electric) succeeded or failed. These examples make his arguments more lively and more remarkable.

I got also the message that taking the initiative, meaning to be a bit more aggressive, is the way to success. Kasparov himself is famous for his aggressive way of playing chess and is now an ambitious Russian opposition politician.

Tuesday, October 18, 2011

IBM: Forever Young?

Getting older but staying physically young? It seems that some companies are doing that with a great success. Look at IBM!  "Big Blue" (the nickname refers to the preferred color in their marketing campaigns) is really an old-timer, founded in 1911 (wikipedia ). But the company rejuvenates itself constantly and stays very modern. Their stock performance is proof. Last week IBM shares reached an all-time high, around 50% higher than in the spring of 2000, at the peak of the former boom (

IBM started with electric tabulating machines and other office equipment and adapted continuously to  technical progress. In the last century they were the leader in the development of computers and PCs. Now the technology bellwether focuses more and more on services for other companies, consulting them how to use the advances of the Internet and other forms of digital technology.

These changes are paying off.  Yesterday the technology goliath reported business numbers from Q3. Profit per share rose 7%, more than expected. Revenues climbed 8%  and the management lifted the profit outlook for the whole year. These are quite strong numbers considering the sluggish global economy!

Wikipedia claims that IBM holds more patents than any other U.S.-based technology company and has nine research laboratories worldwide. In addition to strength in its hardware business, the news channel Dow Jones reports, that  IBM benefits from its investments in emerging markets and growing technology sectors such as business analytics and cloud computing. Further, in the latest period, business-analytics revenue gained 19%, and total revenue in the company's growth markets--which include Brazil, Russia, India and China--was up 19%, or 13% adjusted for foreign exchange. Regarding to Dow Jones growth-markets revenue represented 23% of total geographic revenue; IBM is aiming for that percentage to approach 30% by the end of 2015.

These statistics and the rising profits & revenues prove that IBM stays on the frontier of the technical progress. "Big Blue" is a role model for adaption. Charles Darwin taught us that continuous adjustments to the challenges of our environment are necessary to survive and to be successful. Therefore IBM is a role model for the whole corporate world.

Friday, October 14, 2011

Economy: How The U.S. Consumers Save The World

This morning we got more encouraging data from the economic front. Retail sales rose last month 1,1%, excluding the volatile automobile sales they gained 0,6%. Both numbers were better than expected. In September retail sales were 7,9% higher compared to last year.

This is very good news for the economy. Retail sales are a large part of consumer spending, which creates around 70% of national income. Therefore retail sales are the engine of the whole economy and they overcome the problems in other parts of the U.S., such as the struggling financial sector. Yesterday JPMorgan Chase reported a loss in their investment banking division, but with the help of their solid growing consumer business the bank could still earn a profit. It looks like the consumers saved not only JPMorgan, they also saved the whole U.S. economy. As long as the consumer engine runs smoothly the U.S. will not fall in another recession.

This is good news for the global economy too. The U.S. is still the largest economy in the world and their imports generate a large part of the revenues of European & Asian companies like Mercedes, Adidas or Samsung. Therefore the sound U.S. retail sales are bolstering the economies of Europe & Asia. We could say that U.S. consumers save the world. Thank you!

Thursday, October 13, 2011

JPMorgan Chase: The Good, The Bad And The Ugly

The stock market doesn`t like JPMorgan today, again. In the morning the bank reported her Q3-numbers which were disappointing. Their profit per share was higher than the analysts had expected, but this was just the result of an accounting trick: They reduced the value of some of their own bonds (which are a part of their debts). Without that artificial gain the profit was way less than expected.

Their investment banking division suffered a loss. Fees from investment banking declined around 30%. The bank could show a small profit because their consumer business did well. The so called retail banking (consumer credit and other consumer business) revenue rose 11 percent to $7.5 billion. Credit card sales volume rose 10 percent, reflecting higher consumer spending, Yahoo Finance reported.

The JPMorgan numbers reflect the whole picture of the current U.S. economy: The good, the bad and the ugly.  Their solid consumer business benefits from solid U.S. consumer expenditures, which are the engine of the whole economy (because they generate around two-third of the national income). It looks like the consumers saved the bank.

The bad & the ugly part is that their investment banking businesses, especially trading with stocks, bonds, currencies and other assets, lost money. I guess these people trust too much in their investing abilities, which are quite pathetic. Since 2008 the banks are sliding from one mess into another. When do they ever learn?

Wednesday, October 12, 2011

Movies: Puncture

Lawyers are usually a dignified bunch. Attorneys show modest manners and wear decent suits.  The movie "Puncture" (directed by the brothers Adam & Mike Kassen who are newcomers presents a very different attorney. This lawyer displays a lot of tattoos and flamboyant clothes. He has a cocaine habit, buys cheap sex and the people he hangs around with are like him. His attitude reminded me a bit of Harvey Keitel in "Bad Lieutenant". It would have fit if they had called the flick  "Bad Lawyer". But his high moral standard is the most important aberration from the code of his legal profession, he focuses on belief of what is right and not what brings the most success.

The plot narrates a David & Goliath story. A small attorney is fighting a huge company for medical supplies. But this David also is fighting with himself and his drug habit, which takes more and more control on him. The story is plausible and very interesting.

I liked the cinematography which shows the modern life in an uprising American metropolis (Houston) in cool pictures. I also very much enjoyed the soundtrack, a melange of noisy guitar rock and the baroque music of Johann Sebastian Bach ( ).

The movie is highly intelligent, cool and sexy - a real eye opener.

Saturday, October 8, 2011

Stock Market: Ready For The Comeback?

Last week was very dark. We had to bid farewell to Steve Jobs. Shine on, you iDiamond! But the economic picture is getting brighter, at least in the U.S.

Some data from the economic front was better than expected and signaled a comeback of the U.S. economy. On Friday we were surprised by a decent employment report: In September payrolls rose by 103,000 after a 57,000 gain in August. On Tuesday we got impressive solid retail sales numbers: According to Thomson Reuters, U.S. retailers posted an average gain of 5.1 percent in sales at stores open at least a year, or same-store sales, outpacing the average analyst estimate, which called for same-store sales to rise 4.6 percent. Both data show that consumer expenses, the motor of the economy, are still growing at a solid pace.

Other data also displayed encouraging improvements: Manufacturing unexpectedly accelerated in September, propelled by gains in exports and production, reported Bloomberg. Construction spending expanded in August, and orders for capital equipment increased the most in three months, government data showed.

The economic picture in China, the second engine of the world economy, also got brighter: The indicators for manufacturing and for services both signaled higher growth rates in September.

These news stories confirm that the hard data are much better than the extreme pessimistic sentiment. They demonstrate that the recession fears are way overblown and that the stock market correction went to far. If the hard data flow keeps solid we could expect a strong recovery of the stock market. Last weeks gains, the S&P 500 gained last week around 2%, which could be the start of a significant year end rally!

Friday, October 7, 2011

Culture: Portishead, Hammerstein Ballroom, New York

New York city is a big magnet. It seems that every performer of distinction has to show up in this metropolis. Sadly I missed the Radiohead gig last week, which was sold out in minutes. But I was kindly consoled by the Portishead concert this Tuesday at the Hammerstein Ballroom ( The gig was an outstanding experience.

Beth Gibbons, the singer of the british band, created pictures with her voice which meandered from tenderness to violence. Sometimes her powerful and nevertheless soft voice was teasing us and sometimes kind of attacked us. Her band, consisting of 2 guitar players, 2 percussionists and 1 keyboarder (who changed sometimes to violin and other instruments) extruded these sound pictures to acoustical artworks. The huge screen behind the band was an important part of the show. The canvas translated the sound pictures in atmospherical and surrealistic paintings. The melange of Beth`s voice, instruments and screen created psychedelic, electrifying and sometimes erotic tableaus, which produced goose pimples of joy. 

It would be unfair and inappropriate not to mention the support band "Thought Forms". The 2 guitar players and the drummer served a powerful and noisy rock with heavy metal elements. Well done!

If you get a chance to see Portishead sometimes, then you should! Even "Thought Forms" is worth a visit.

Wednesday, October 5, 2011

Capitalism: Variety Is The Salt Of The Earth

Everything is getting more and more complex. This is like the second law of thermodynamics, known as entropy, as you may recall from your school days. You can see this even in a lot of well sorted American groceries and other shops. They offer you a huge selection of products. For example you can choose between almost hundreds of yoghurts, salad dressings, canned food and other things.

This huge variety is one of the advantages of capitalism. The profit motive leads producers and  grocery store owners to give you a lot of opportunities to choose from. Many commentators claim that  this variety is not needed. They feel allegedly overwhelmed and confused.

I believe these commentators misunderstand the idea  of variety. The huge selection is not just for them. Everyone has different tastes. Therefore different products appeal to different customers. The greater the variety, the higher the chance that everybody finds the product she or he prefers.

Therefore the huge selection raises the quality of life. The opportunity to "vote" for different variations is basically democratic and it`s fun to shop in big supermarkets.

By the way: If the high variety were as unnecessary and unwarranted, as many critics claim, then the supermarkets would lose money with it and therefore cease the offer huge selections.

Tuesday, October 4, 2011

Movies: Contagion

Some movies arrive with a big hype. One of them is "Contagion". It got a lot of good reviews, has an ambitious director (Steven Soderbergh), an impressive cast (Marion Cotillard, Kate Winslet, Gwyneth Paltrow, Matt Damon, Jude Law & Laurence Fishburne), a long list a fashionable locations and a scary topic: A global virus epidemic.

Therefore I watched the film with high anticipation, but as the end titles started running over the big screen, I thought: So what? Ok, the flick was entertaining, at least a bit. But it had  nothing spectacular. "Contagion" doesn`t play in the league of "Social Network" or "Inception".

The plot isn´t surprising at all. Soderbergh narrates how a very aggressive virus spreads explosively all around the globe and kills the infected in days. But we know this story already from the news about recent global pandemics like the influenza H1N1, called swine flu, SARS and the bird flu.

Almost every year the media reports shocking news about a coming pandemic, which could endanger the whole world, but then the news disappear quietly. The disaster, predicted by many experts, never occurred. But the business of scaring people is good for the media, because they attract a lot of readers.

It seems to me that Hollywood just tried to surf on the pessimistic "Zeitgeist" and sells us an alarmist view of the world. Being an economist I can understand that, but films like "28 days later" which also focused on the contagion of an aggressive virus did that in a much more entertaining way. In my eyes Soderbergh is just an overrated boring director who tries to pep up his reputation with a disaster story.

Monday, October 3, 2011

Investing: A Bargain Named Chinese Internet Stocks

Chinese Internet stocks are in a free fall. Since July Baidu (search), Sina (portal), Sohu (portal), Netease (networks) and China E-Commerce Dangdang have tumbled more than 30%. To me, the crash seems way overdone and creates a bargain. This is why:

There are at least 2 issues behind the fall, which are just temporary and should cease soon, making way for a recovery.

1. The Chinese economy is cooling, especially manufacturing. This is intended by the Chinese government. Peking is scared by the risk of inflation and is standing on the brakes now. But the prices for oil, metals and other commodities are plummeting, and are now easing the inflation risk.

2. Chinese Internet stocks are under pressure because the Department of Justice is currently reviewing allegations of accounting fraud at firms operating out of the Asian nation. The bureaucrats are reacting to rumors which were spread by speculators who are betting on falling stock prices. I believe there is nothing behind these rumors and therefore the stock should recover soon.

3. Some of the Chinese companies suffer interventions by the Chinese government. In August,  Baidu was attacked by the government owned tv-channel CCTV. The station claimed Baidu allegedly used lax approval processes on its paid advertising platform that allows for fraudulent websites to flourish. The search machine "may face tougher rules after state media criticism", commented Reuters. But this wasn`t the first politically motivated attack. Some years ago CCTV claimed the Baida allowed advertisement for false medical products, sending the stocks south. But the Baidu management reacted swiftly and smartly. They apologized and changed their advertising system and the stock soon returned to the rising trend.

There is a high probability that these negative issues dissolve by Christmas. And: The Chinese internet market, especially e-commerce, is still in a very young phase and should continue it´s meteoric rise. Both factors imply that Chinese internet stocks will have much higher prices by then.

Saturday, October 1, 2011

Culture: East River Concert, New York

New York City is an expensive place, but you will be surprised how many things you can get there without paying. Among the free offers are the countless open air rock concerts in summer. Yesterday I enjoyed a rock event at East River Park Amphitheater. The place is close to the water front on FDR Drive & Delancey Street in the trendy Lower East Side.

The event was organized by Bodyface, a New Yorker alternative band (whatisbodyface). I had a narrow schedule this afternoon and was just one hour there, arriving around 3 pm.

Then I enjoyed the performance of "The Karen Curious Band" a lot (facebook). Karen and her band, 2 guitar players and a drummer, served a strong grunge. The gig fit well at this place in the style of old greek amphitheaters.