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Wednesday, April 23, 2008

Atlas, Um, Shrugged

40 ringgit (Malaysian currency) is about $14 USD. Apparently thieves in Sabah, Malaysia, worked for several days to remove beams from a power pylon in order to get approximately that on the black market. As a consequence of this commercial endeavor, the pylon collapsed and took out the power supply for a good part of the state.

There are many ways to look at this, but the most interesting to me is that multiple people worked for days and took considerable risks for such a low return. It may well be that they got more than double the official estimate, but that would still generate an astonishingly low daily return.

The cost to the utility was estimated at more than $300,000 USD.

This is inflation in action, and it's why these governments have to maintain subsidies. Raiding a rice warehouse is one thing, but when people start dismantling pylons carrying live wires out of desperation, you have no option. Of course, given that world population is increasing in these countries and that they must subsidize, this really means that the subsidized commodities become price insensitive for a time.

In other recent news, Canada cut 50 basis points, the London commercial RE market looks to be breaking, the Spanish builders are beginning to hold their own fire sales, and the phenomenon of immigrants buying apartments is beginning to crumble.

As for worldwide inflation, it doesn't seem clear to me that it is being affected all that much by monetary policy. Australia, which is likely to raise rates again from its current 7.25%, is currently seeing inflation almost exactly equivalent to the US. When you are importing inflation, your own monetary policy has a marginal effect.

Japanese exports to the US slowed 11% YoY. Overall Japanese exports rose 2.3% on increases to the EU and to other Asian countries, but the rate of increase is slowing as well. Japanese bankers are not optimistic and the Japanese finance minister wants the US government to bail out US banks. Since the Japanese government basically followed that policy during their RE collapse, and experienced deflation and two decades of a weak economy as a result, I think the US government should politely decline.

Every time anyone talks about the emerging economies carrying world growth on their shoulders, just think about a few poor Malaysians getting 5-10 USD a day for dismantling a power pylon carrying live lines. The base of the pyramid is getting whittled away day by day.


I'm not predicitng double digit inflation, but my best GUESS is that inflation over the next decade will be higher than the prior decade. This is problem as I don't foresee any real wage gains for the American middle class. Globalization is tough on the wages of developed nations.

Governments spending and loose central banking fostered a lot of excess money creation over the past 20 years. That excess money flowed into assets for a long time - good inflation (seemingly free wealth actually). Going forward, CPI goods are now cheap against investable assets and their likely returns - bad inflation.

We're on the other side of the self-reinforcing cycle now. Bernanke & congress will make it worse.
I think you pegged it. This is the pretty natural result of the earlier cycle, and nothing can really stop it. We can play on the margins, that's all.

I don't think Bernanke can influence it much regardless of what he does.
Wow. The mind boggles.

Risk $300,000 of OPM (other people's money) to gain $14?

I'm tempted to suggest a career in investment banking and/or hedge fund management.
Mark - It's not investment banking any more. It's "Creative Wealth Destruction With Bonuses".
Two of my BiLs have had to alarm the wire shed in back of their electrical contracting business. Copper is the new gold. How long before we go back to locking gas caps? Remember those? I've heard stories that professionals are getting involved. A pump and 30 seconds in the mall parking lot is all it takes.

Globalization was not symmetrical because we didn't insist. Face it, there would be no trade deficit with Chindia if Microsoft were paid for XP. Think of the surplus if Hollywood weren't being robbed blind. Worse however, are all the technology transfers. Walmart makes no bones about supplier surveys and then taking the knowledge to their Chinese partners.
Rob: I've seen on TV news that they use drills to get out gasoline from locked tanks.

MOM: Today's TV news had Sam's Club and even BJ's wholesale rationing rice, etc. And Brazil joined the "infamous" former rice exporter list Sounds more like Smoot-Hawley is becoming true after all...
It's not investment banking any more. It's "Creative Wealth Destruction With Bonuses".

It is always a pleasure to read those who have a good sense of [gallows] humor. You made me both laugh and cry at the same time. Well done!
"Creative Wealth Destruction With Bonuses"

Don't forget those Golden "walkaway" options, too. (What used to be called golden parachute.)
Ah, that's the wonderful thing about those bonuses! The top guys get them no matter what happens.

The bad part is when the lower level people who are actually making money DON'T!
From Carpe Diem:

Russia's New Consumer Nation: Wal-Mart Drools
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