Comment, analysis and other offerings from Friday’s FT, William Wallis: Why Africa is leaving Europe behindAfricans are relishing something of a reversal in roles, writes William Wallis, the FT’s Africa editor. The former colonial powers in Europe are wrestling with debt crises, austerity budgets, rising unemployment and social turmoil. By contrast much of sub-Saharan Africa can point to robust growth, better balanced books and rising capital inflows. There is an opportunity in this novel scenario: for Africa to assert itself on the global stage, and for European countries to take advantage of their historic footprint in Africa by stimulating commercial expansion to their south. But it is far from clear either side will grasp it.
Vice-President Joe Biden is in China to get the measure of the country’s likely next leader, Xi Jinpingr, says Bloomberg. The US is keen to push for economic cooperation, although foreign journalists were bundled out of the room by Chinese security when Biden mentioned the economy in a speech, says FT beyondbrics. Biden is expected to spend most of his time over the next five days with vice president Xi Jinping, providing officials rare access to the inner circles of Chinese government, says the WSJ.
The White House will lay out detailed plans on deficit reduction and job creation next month, pressing Republicans in Congress to accept fresh support for the sluggish US economy, reports the FT. President Barack Obama is seeking to revive plans that would combine long-term deficit reduction with immediate steps to boost job growth, says Bloomberg. The measures will include the extension of a two per cent cut in the payroll tax for workers that is due to expire at the end of 2011. White House officials are keen to point out that the policies would be revenue neutra, Politico adds.
Dell has cut its revenue forecast for the rest of the year, sending its shares tumbling nearly 8 per cent in after-market trading, says the FT. The company blamed economic uncertainty including a slowing outlook for government and corporate spending as it cut the forecast for revenue growth to between 1 and 5 per cent, instead of 5 and 9 per cent, the WSJ says. Nevertheless, Dell executives claimed the company is now less dependent on its traditional PC business and said it was in a stronger position to withstand an economic downturn than it had been in 2008.
Barclays star banker Todd Edgar and his team of nearly a dozen fellow commodities traders are set to leave the bank amid a push to cut costs, reports the FT. The move is part of a strategy to shed overheads and put the UK bank on target to hit profit targets but comes only two years after Edgar was poached from JPMorgan’s proprietary trading team to join Barclays Capital. The £30m deal stoked a political storm at the time, sparking a semi-public row which ended in the US bank filing a complaint with the UK’s Financial Services Authority.
Speaking of a patent war in the smartphone industry… Compared to the massive Google-Motorola deal, Samsung’s ongoing battle with Apple is more like a skirmish, but it probably shows just how disruptive Google’s strategy could be, if they can pull it off.
Interpublic has sold half its stake in Facebook to an undisclosed buyer, valuing the social network at $66.5bn, the FT reports. The advertising group owned slightly less than half of 1 per cent of the social networking giant. Facebook’s valuation has increased more than fivefold in less than two years, driven largely by companies like Interpublic that make small investments in the hope of forging strategic partnerships. Interpublic said that the share sale would bring in approximately $130m, says the NYT.
German economic growth slowed to a near standstill in the second quarter of this year, dealing a further, unexpected blow to eurozone prospects, the FT reports. GDP rose o.1 per cent compared to 1.3 per cent the first quarter, Germany’s statistics office said. The euro fell more than 1 per cent against the Swiss franc on the darkening growth outlook for the eurozone, reports Reuters. French growth stalled in the same period, suggesting the business cycle decisively shifted during the second quarter, Bloomberg says. The French and German leaders also meet on Tuesday to discuss the bloc’s debt crisis as a threat to growth, Reuters adds.
Breaking Google news on Monday lunchtime: RTRS-GOOGLE TO ACQUIRE MOTOROLA MOBILITYRTRS-GOOGLE INC – DEAL FOR $40.00 PER SHARE IN CASHRTRS-GOOGLE INC – DEAL FOR ABOUT $12.5 BLNRTRS-GOOGLE INC – SAYS MOTOROLA MOBILITY WILL REMAIN A LICENSEE OF ANDROID AND ANDROID WILL REMAIN OPENRTRS-GOOGLE INC – SAYS GOOGLE WILL RUN MOTOROLA MOBILITY AS A SEPARATE BUSINESS.RTRS-GOOGLE INC – SAYS “VISION FOR ANDROID IS UNCHANGED AND GOOGLE REMAINS FIRMLY COMMITTED TO ANDROID AS AN OPEN PLATFORM”
We have never been great fans of the “Shiller P/E” based on 10-year moving averages. Much, much better than spot P/E but still too short-term to cope with the sometimes outsize cyclical fluctuations in earnings. But we are great fans of the Shiller data, and one valuation check we use is to look at the multiple of very long term trend earnings. That seems to us to address a really fundamental question; how much are investors prepared to pay for a year’s worth of trend earnings?
The Global Composite Valuation Indicator combines a number of key valuation metrics. It covers US, European, Japanese and EM real equity returns, G5 equity-to-bond returns, BBB credit spreads and our World Wealth index. Given its importance as collateral, we also include US house prices. All input variables enter the indicator standardised and relative to their long-term trend.
There can be no doubt that besides the regular types of the circulating medium ….there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper….
Even after early cycle momentum peaks risk appetite tends to ebb, and risk assets tend to struggle for a while: developed equities usually under-perform bonds and emerging equities usually under-perform developed equities, before setting up the next leg higher with somewhat different leadership. In the last recovery, momentum made its early cycle peak in November/December 2003 but equities made marginal new highs in the three months following: the real correction didn’t start until April 2004, by which time the Fed was starting to signal towards the exit. Emerging equities were down 20% in just over a month, developed markets more like 10-15% over several.
Good deflation and bad deflation? There’s nothing wrong with deflation when it’s a falling price boom we’re talking about. In modern times China comes closest: no one is stressing about the fact that Chinese non-food inflation is minus 1.5 per cent at the moment.
If there is one axiom of today’s Pigovian pessimism it is the idea that after decades of decadent reliance on debt to goose up consumption, US consumers are structurally over leveraged. And that it may take a decade or more of pain to unwind the damage, during which time US consumption and GDP growth will be pitifully slow. Arguably this is the most overbought idea to come out of the current crisis:
Another favourite: J.K. Galbraith this time. That the free enterprise economy is given to recurrent episodes of speculation will be agreed. These — great events and small, involving bank notes, securities, real estate, art and other assets or objects — are, over the years and centuries, part of history. What has not been sufficiently analyzed are the features common to these episodes, the things that signal their certain return, and have thus the considerable practical value of aiding understanding and prediction.
All the US bank runs and panics of the late 19th century — 1857, 1861, 1866, 1873, 1877, 1890, 1893, 1896 and 1907 — are clearly visible in the chart below of the call money rate — the rate for borrowing collateralised against equities. The call money market was the “shadow money” of its day — and lending terms almost always tightened when the underlying collateral was in a bear market, and usually eased remarkably quickly once it was over.
The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant; for (the) boom has necessarily been a period of strong emotional excitement, and an excited man passes from one form of excitement to another more rapidly than he passes to quiescence. Arthur Cecil Pigou (1877-1959)