March 2011 - Global Economic Watch


Global Economic Watch


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3M's George Buckley on Innovation

03-31-2011 8:53 AM with no comments

George Buckley, CEO of 3M, recently had Tea with The Economist, and the subject of the chat was innovation.  3M is regarded as a company that has effectively innovated with the times.  And Buckley does a good job of explaining the company's philosophy in being willing to take risks and not fearing failure.  But he also discusses some of the present and future challenges for 3M in this talk.  Among those challenges: the scarcity of strong science graduates in the US today.  Take a look:

Posted by Graham Griffith

The Story Behind Bloomberg's Environmental, Social, and Governance Data

03-31-2011 8:31 AM with no comments

If you have a Bloomberg terminal in your office then you are able to access all sorts of data on companies.  And for the last couple of years you have been able to see ESG data on companies.  ESG stands for environmental, social, and governance.  And, according to Fast Company's Paul Tullis, the ESG ratings were added after Bloomberg's susatainability director, Curtis Ravenel, stumbled across such ratings while working to make Bloomberg's operations more green.  Ravenel came across an increasing number of clients (mainly in Europe, Tullis notes) that wanted more sustainability data.  But not for egalitarian reasons.  Tullis writes:

If a company treats its employees well, for instance, it should have less turnover and lower HR costs; if a manufacturer gets serious about safety, it can avoid expensive lawsuits. There's increasing evidence -- and, correspondingly, a growing belief among portfolio managers -- that companies taking such factors into account are forward-thinking and well managed, and therefore places investors should consider.

The biggest indicator in the ESG matrix right now is environmental impact. "The financial community likes the E because it's easy to quantify," Ravenel says. "And within E is the big C: carbon." And within that C is another C: cost. Some European countries, such as Sweden and Denmark, tax the carbon emissions of companies with offices there. The EPA's rules to regulate CO2, which went into effect January 2nd, will affect many American balance sheets. If companies wake up one day to find it costs $15 to emit a ton of CO2, a financial analyst considering ExxonMobil would see it emitted 128 million metric tons in 2009. That adds nearly $2 billion to the oil giant's operating costs -- hardly extra-financial data.

Ravenel used this kind of argument to persuade Bloomberg to add ESG data to its terminals. His team spent countless hours assembling and entering data into the system (often by hand) before going live in July 2009. Today, when Bloomberg's 300,000 market-savvy customers turn on their terminals in the morning, they can see ESG data such as greenhouse-gas intensity per sales, water usage, employee fatalities, toxic discharge, and more than 100 other indicators as part of their basic package alongside the rest of the Wall Street alphabet soup. (The ESG data does not cost extra.)

And investors are using it: In the second half of 2010, 5,000 unique customers in 29 countries accessed more than 50 million ESG indicators via Bloomberg's screens -- a 29% increase over the first half of last year. "We expect that trend to continue," Ravenel says.

Read Bloomberg's Push for Corporate Sustainability here.

Posted by Graham Griffith

World Economic Forum Report on the State of Long-term Investing

03-30-2011 12:10 PM with no comments

The authors of a new World Economic Forum report on long-term investing, not surprisingly, see access to capital as a significant restraint on long-term investors.  The global economic crisis is the primary cause of that limited access.  But the crisis also may have shifted investors' attitudes, as the authors find that there is now less of an appetite for risk and possibly more of an appetite for accounting standards and accountability:

Of more immediate importance to the financial markets is that many long-term investors have de-risked their portfolios in response to regulatory and accounting changes, including a move towards mark-to-market accounting and stricter capital requirements, as well as a lower institutional tolerance for risk. This shift has led many institutions to increase their buffers of liquid investments—with some institutions shunning illiquid investments altogether—and reduce the capital allocated to risky and volatile assets. The effect of this shift in asset allocations can already be seen and indicates a clear movement away from equity investments and towards liquid debt investments. In addition, the amount of assets managed by these long-term investors is under pressure due to such factors as a global shift from defined benefit pensions towards defined contribution pensions.

The report concludes that there will likely be a further decline in long-term investing by life insurers and pension funds. This decline will only be partly offset by the increase in assets under management of family offices, endowments, foundations and a number of sovereign wealth funds. Absent changes in the investing environment, both external and internal to the institutions, we expect that there will be an overall reduction in the proportion of global investable assets directed towards long-term investing, with potentially significant economic implications.

Max von Bismarck is  Director and Head of Investors for World Economic Forum USA, and he is one of the authors of the report.  Here he is introducing the report and sharing some of the key findings:

Read the full report here.

Posted by Graham Griffith

Feldstein: If China's Savings Rate Goes Up, Interest Rates Will Follow

03-30-2011 9:12 AM with no comments

China's latest 5-year-plan--the country's 12th--seeks to "improve people's livelihoods, social infrastructure and safety nets, and to tackle rising inequality," according to the BBC's Sarah Wang.  And that likely means pushing for an increase in consumer spending.  Martin Feldstein believes that any significant shift away from maximizing GDP growth as China's overarching economic objective will bring have far reaching consequences on the global economy.  Namely, interest rates will likely go up as China's savings rate goes down.  At Project Syndicate, Feldstein writes:

A country that saves more than it invests in equipment and structures (as China does) has the extra output to send abroad as a current-account surplus, while a country that invests more than it saves (as the United States does) must fill the gap by importing more from the rest of the world than it exports. And a country with a current-account surplus has the funds to lend and invest in the rest of the world, while a country with a current-account deficit must finance its external gap by borrowing from the rest of the world. More precisely, a country’s current-account balance is exactly equal to the difference between its national saving and its investment.

The future reduction in China’s saving will therefore mean a reduction in China’s current-account surplus – and thus in its ability to lend to the US and other countries. If the new emphasis on increased consumption shrank China’s saving rate by 5% of its GDP, it would still have the world’s highest saving rate. But a five-percentage-point fall would completely eliminate China’s current-account surplus. That may not happen, but it certainly could happen by the end of the five-year plan.

If it does, the impact on the global capital market would be enormous. With no current-account surplus, China would no longer be a net purchaser of US government bonds and other foreign securities. Moreover, if the Chinese government and Chinese firms want to continue investing in overseas oil resources and in foreign businesses, China will have to sell dollar bonds or other sovereign debt from its portfolio. The net result would be higher interest rates on US and other bonds around the world.

Read China’s Five-Year Plan and Global Interest Rates here.

Posted by Graham Griffith

Education and Income Map from Good

03-30-2011 8:51 AM with no comments

In an effort to hammer home a point about the correlation between education and income, Good put together this map:

The more educated and well paid the population of a given county, the darker the color--as data for education levels are overlaid with data for income.  Take a look at Good's work here.

(hat tip Barry Ritholtz)

Posted by Graham Griffith

Cenedella: Real Entrepreneurs Don't Wait

03-29-2011 9:18 AM with no comments

What do entrepreneurs have in common?  They don't wait to pursue their idea.  At least that's how Mark Cenedella, CEO and founder of sees it.

Watch more from Cenedella at Big Think, here.

Posted by Graham Griffith

IBISWorld Names 10 U.S. Industries Headed Toward Extinction

03-29-2011 8:54 AM with no comments

In a special report for IBISWorld, Toon Van Beeck names ten industries that are in decline.  Economic recovery will not help these industries, according to Van Beeck.  IBISWorld has identified some 200 industries that are in decline, but these ten are "on the verge of extinction":

Van Beeck:

The DVD, Game and Video Rental and Newspaper Publishing industries may be obvious, but there are many others that some are unaware of. Furthermore, each and every one of these industries has been impacted by one of more of the three detrimental industry factors, including external competition, advances in technology and industry stagnation. It should also be noted that while these industries all have negative numbers, it does not mean that the players that operate within them are also on the brink of death. Industry operators that protect their strengths in certain market segments, focus on niche opportunities and capitalize on the dwindling number of competitors often reap the strongest rewards of sole operation, market survival and profitability. An example of this trend is Berkshire Hathaway, which holds a prominent position in one of the top dying industries: Mills.

Read the special report here.

(h/t Phil Izzo of the WSJ)

Posted by Graham Griffith

Free Social Media Apps Help Level the Playing Field for Small Business Marketing

03-28-2011 9:32 AM with no comments

Sean Enns, president of Harbour City SEO, says Foursquare is to small business owners as the slingshot was to David.  If you want to compete with the big boys, and yet don't have a significant marketing budget, use free services, Enns argues.  Writing at Sprout Social, Enns shares four Foursquare promotions:

1. Offer a special deal for the Mayor and other repeat customers.  ("The Mayor," is the "most frequent visitor to your venue over the past 60 days.")

2. Provide something of value to first-time customers.

3. Offer “flash” specials.

4. Encourage multiple checkins.

These are all promotions that will cost you time, but not money.  Read How to Use Foursquare to Compete Against a National Brand here

(hat tip Small Business Trends)

Posted by Graham Griffith

Getting to Know Fannie and Freddie and Ginnie and Sallie

03-28-2011 9:07 AM with no comments

Congress will start debating what to do with Fannie Mae and Freddie Mac this week.  The two mortgage giants currently have been under government control for 30 months now, and there are several different ideas for what to do with them when they come out of receivership.  Still, many Americans aren't quite sure what these corporations really are, so it is a good time for a primer.  Paddy Hirsch takes us to the Marketplace Whiteboard to explain just who Fannie and Freddie (and Ginnie and Sallie) are:

Meet the Maes and Macs from Marketplace on Vimeo.

Posted by Graham Griffith

McKinsey Global Institute Report on the Economic Power of Cities

03-25-2011 9:07 AM with no comments

In case you haven't been paying attention, urban centers are getting more and more powerful.  Over the next 15 years, the 600 largest cities will account for an estimated 35% of the expansion of the global workforce, according to a new report from the McKinsey Global Institute.  Cities just about everywhere growing in size, GDP, and share of national GDP.  But cities in developing economies are growing at a faster rate.  From the report Urban world: Mapping the economic power of cities:

Today, major urban areas in developed regions are, without doubt, economic giants. Half of global GDP in 2007 came from 380 cities in developed regions, with more than 20 percent of global GDP coming from 190 North American cities alone. The 220 largest cities in developing regions contributed another 10 percent.

But by 2025, one-third of these developed market cities will no longer make the top 600; and one out of every 20 cities in emerging markets is likely to see their rank drop out of the top 600. By 2025, 136 new cities are expected to enter the top 600, all of them from the developing world and overwhelmingly—100 new cities—from China.

Take a look at how the balance of urban power is shifting east:

The lesson for global-minded businesses seems pretty clear.  The action will be where the people are.  And increasingly, the people are going to be in growing cities in emerging markets.  To be sure, there is growth in US cities as well--just not at the same rate.  Read the full report here.

The McKinsey Quarterly has a useful interactive map of the world with city-by-city data drawn from the report.  Click here to explore the map.

Posted by Graham Griffith

Gates: State Budget Crises, Accounting Tricks, and Schools Losing Out

03-24-2011 8:55 AM with no comments

Bill Gates is concerned about the budget crisis at the state level.  The future of business in America depends on a strong, well-funded educational system.  And that, Gates fears, is less likely to come about as state governments need to use "gimmicks" to put forward balanced budgets.  He discusses the gimmicks, and the cost of weakening schools in this Ted Talk:

Posted by Graham Griffith

Visualizing Economics: US Home Prices, Real vs Nominal

03-24-2011 8:34 AM with no comments

New home sales fell 16.9 percent in February, according to the Commerce Department. The drop places new home sales at their lowest level in "nearly half a century," (AP/NYT).  With poor sales of new homes and a glut of older homes on the market, housing prices look like they'll remain low for some time. So how do home prices today compare to in the past?  Catherine Mulbrandon has charted housing prices--both nominal and real prices--from 1890 through 2010.  

Go to Visualizing Economics for the full size chart and Mulbrandon's comments. Click here.

Posted by Graham Griffith

Detroit's Population Loss a Result of 'Industrial Shift'

03-23-2011 12:19 PM with no comments

The city of Detroit lost a quarter of its population over the first decade of this century (Michigan was the only state to lose population between 2000 and 2010).  Dan Gross says that more than anything this underscores the damaging effects of an "industrial shift."  We still make a lot of cars.  But we don't need as many people to make cars, and we don't need a centralized labor force as much as we once did.  Gross discusses the Detroit news with Henry Blodget on Yahoo's Tech Ticker:

Posted by Graham Griffith

Growth in Twitter Usage

03-23-2011 9:41 AM with 1 comment(s)

Here is eMarketer's latest estimates of the growth of Twitter usage (by US adults) over the next few years:

Note that eMarketer defines users as people who access a Twitter account once a month.  And these estimates are designed to give a more accurate picture of actually usage than a lot of the numbers put out there by Twitter and members of the media who make the mistake of counting the total number of Twitter accounts rather than considering duplicate accounts and inactive accounts--so-called "Twitter quitters."  Read A Look at the True Twitter Audience here.

Posted by Graham Griffith

Shiller's Bubble Hunches

03-23-2011 9:28 AM with no comments

At Project Syndicate, Yale economist Robert Shiller takes a stab at predicting where the next bubble might be.  Shiller says there is no way to accurately predict bubbles--"bubbles are social epidemics, fostered by a sort of interpersonal contagion"--so he shares some "hunches."  

We have had a huge rebound from the bottom of the world’s stock markets in 2009. The S&P 500 is up 87% in real terms since March 9 of that year. But, while the history of stock-market prediction is littered with too much failure to try to decide whether the bounceback will continue much longer, it doesn’t look like a bubble, but more like the end of a depression scare. The rise in equity prices has not come with a contagious “new era” story, but rather a “sigh of relief” story.

Likewise, home prices have been booming over the past year or two in several places, notably China, Brazil, and Canada, and prices could still be driven up in many other places. But another housing bubble is not imminent in countries where one just burst. Conservative government policies will probably reduce subsidies to housing, and the current mood in these markets does not seem conducive to a bubble.

A continuation of today’s commodity-price boom seems more likely, for it has more of a “new era” story attached to it. Increasing worries about global warming, and its effects on food prices, or about the cold and snowy winter in the northern hemisphere and its effects on heating fuel prices, are contagious stories. They are even connected to the day’s top story, the revolutions in the Middle East, which, according to some accounts, were triggered by popular discontent over high food prices – and which could themselves trigger further increases in oil prices.

But my favorite dark-horse bubble candidate for the next decade or so is farmland – and not just because there have been stories in recent months of booming farmland prices in the US and the United Kingdo

Read Bubble Spotting here.



Posted by Graham Griffith

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