08S7C's Economics Blog

Every Breath Bernanke Takes

posted by jingying khor @ 11:50 PM 0 Comments

Principles of economics, translated

posted by jingying khor @ 11:33 PM 0 Comments

How to spend it

from:
http://www.economist.com/finance/displaystory.cfm?story_id=11088559

Apr 24th 2008 | DUBAI AND JEDDAH

From The Economist print edition

A region awash with oil money has one or two clouds on the horizon

THE Gulf is full of loud architectural statements—towers that reach over 600 metres into the sky, hotels that will be suspended under the sea. It is easy, then, to miss the quiet resonance of Imperial College London's gleaming diabetes centre in Abu Dhabi, the capital of the United Arab Emirates (UAE). The building is decorated with tessellated plates of aluminium, a pattern inspired by the geometry of an insulin crystal and the musharabiya latticework of the region's past.

Opened in 2006, the hospital now cares for 6,000 patients, who pass through its chain of tests and treatments in a single visit. Almost a fifth of the UAE's native population suffers from diabetes, a rate second only to Nauru's. Next come three fellow members of the Gulf Co-operation Council (GCC)—Saudi Arabia (16.7%), Bahrain (15.2%) and Kuwait (14.4%).

Diabetes is a useful metaphor for the Gulf's present problems. The region's economies are struggling to absorb petrodollars, accumulating like glucose in the bloodstream. The risk they face is the economic equivalent of renal failure: inflation, a hollowing-out of the non-oil sector, and a young, growing workforce in chronic need of outside labour to supplement it.

The six nations of the GCC, which also includes Qatar and Oman, earned $381 billion from their exports of oil in 2007 and another $26 billion from gas, according to the Institute of International Finance (IIF). If the oil price remains at about $100 a barrel, they will reap a cumulative windfall of almost $9 trillion by 2020, reckons the McKinsey Global Institute: a vast number relative to the size of the GCC economies, which had a combined GDP of $800 billion in 2007.

Not all these riches are ingested, of course. The Gulf added $215 billion to its stock of foreign assets in 2007, the IIF calculates. This hoard is divided between the region's central banks, its sovereign-wealth funds and its wealthy sovereigns. It added up to $1.8 trillion by the end of last year, by the IIF's estimates, and more like $2.4 trillion, according to Brad Setser of the Council on Foreign Relations and Rachel Ziemba of RGE Monitor.

This financial clout has aroused anxiety, especially as some of the smaller funds have ventured beyond bank deposits, government bonds and minority stakes into less anonymous investments. In March the government of Abu Dhabi wrote letters to finance ministers around the world, explaining the motives guiding its investments. Its funds are only in it for the money, the letters said.

It is a plausible claim. If the Gulf is now a financial superpower, as Mr Setser and Ms Ziemba put it, then it has had its greatness thrust upon it. Its dollar surpluses were accumulated more by accident than design. The region's governments, scarred by the cheap oil of the 1990s, were slow to believe high prices would last. Their revenues then outpaced their ability to spend.

Slowly, however, the Gulf states' domestic ambitions have begun to catch up with their greater means. The six members of the GCC have announced or begun projects worth $1.9 trillion, according to Middle Eastern Economic Digest, 43% more than a year ago. The magnitude and mystique of the Gulf's foreign investments may arouse curiosity and concern. But what is more remarkable is how much the Gulf is now trying to spend on itself.

An avenue in the desert

No one could accuse Dubai of hoarding rather than flaunting wealth. For those not content with five-star luxury it offers the sail-shaped Burj al-Arab, the world's only seven-star hotel. Guests arrive by helicopter or Rolls-Royce, watch 42-inch plasma TV-screens in their rooms and choose from 13 pillows on which to lay their heads.

Dubai makes an exhibition of its prosperity because its economy now depends on people with money. With only a tiny percentage of the UAE's oil reserves, it has become adept at conjuring up ventures for others to finance. Now that its more conservative neighbours, such as Saudi Arabia and Abu Dhabi, are keen to invest more at home, they are learning from Dubai the arts of immodesty and audacity.

There are few better tutors than Emaar, one of Dubai's big-three developers, best known for building the Burj Dubai, the world's tallest tower. In 2006 its Saudi offshoot raised 2.55 billion riyals ($680m) to build a metropolis on the Red Sea coast, 100km north of Jeddah. The King Abdullah Economic City (KAEC), due for completion in 2016, will have over 2,000 factories and 2m people. Its resorts will offer 22,500 rooms and its port will dwarf the Islamic Seaport in Jeddah, handling the equivalent of 20m 20-foot containers a year and 300,000 pilgrims bound for Mecca.

In the last oil boom, new industrial cities such as Yanbu and Jubail arose at the government's behest. But Emaar raised its money from local investors in an oversubscribed public offering. Such “stockmarket hullabaloo” was new to Saudi Arabia, one critic says. Indeed, the private sector has never before taken on a city of this size.

Over the entrance to the site hangs a portrait of King Abdullah, looking down benignly. The archway marks the beginning of a 17km road lined with palm trees, which cannot disguise the dusty emptiness that extends for miles on either side. The wind-blown sand forms natural speed bumps along the route. Where the road meets the sea, construction has begun. A rig pounds an inlet out of the coast, sending rubble rattling down a pipe to the sea. Workers take a moment to pray, bending like the palm trees in the wind.

Emaar makes its money selling dream properties “off-plan” (ie, before they are built), using the proceeds to turn the rendering into a reality. In Dubai the model works well, thanks to the strength of Emaar's brand and the speed of Dubai's administration. In Saudi Arabia, buyers are more wary and the ministries less brisk. Emaar has recently agreed to lease industrial space to a Saudi-French lubricants company and an aluminium joint-venture from Abu Dhabi and Dubai. But the Saudi king, visiting last August, seemed unimpressed with progress. The deadline was tightened from 2026 to 2016. In February an even bigger “industrial zone” was announced, Sudair City, which will be financed mostly by the government.

Emaar faces another speed bump common to the entire region: the mounting cost of men and materials. Cement, steel, even sand are becoming pricier, and engineers are in short supply. Inflation, which reached 8.7% in February, is a shock to the Saudis, whose central bankers are as conservative as their clerics. In Oman the rate is 11.1%, an 18-year record. In the UAE and Qatar it is also well into double digits.

Behind these disturbing numbers lie three economic forces. First is the rise in the world price of commodities, especially food, thanks to strong demand and strained supply. Second is the fall of the dollar, to which all Gulf currencies are pegged except the Kuwaiti dinar. The third force is less familiar. It is the rise in the price of non-traded goods, principally housing and office space, which is arguably a natural result of the oil boom, and may even help the Gulf absorb its new riches.

The high price of food can tax even the hardiest consumer. The cost of good camel fodder has more than doubled in eight months, says Sameh Musabha, who watches four of his 80-strong herd trot around the race track in the UAE's tiny emirate, Ras al-Khaimah. “Everything is expensive now,” he says. At the Two-Dirham Plaza nearby, many items now sell for five.

The fall of the greenback, meanwhile, has raised the price of those imports not invoiced in dollars. Foreign workers complain bitterly that the money they earn in the Gulf stretches less far when sent to their families in India, Pakistan or Britain. The peg has forced the Gulf's central banks to shadow America's Federal Reserve, even as their economies have parted ways.

Might they re-peg their currencies at a stronger rate, or abandon the peg altogether? A meeting of the GCC in December dismissed the idea, saying that a rejigging of rates might jeopardise their ambition of monetary union in 2010. A stronger reason, suggests John Sfakianakis, chief economist of Saudi British Bank (SABB) in Riyadh, was Saudi Arabia's reluctance to undermine the dollar, the currency of its closest ally. But Qatar's prime minister thinks his currency is 30% undervalued, and he may still break ranks.

Disappearing dhows

Even if the dollar were steady, the region's prices would be unstable. This is because if the Gulf is to absorb its petrodollars, the price mechanism has work to do.

When an energy exporter converts its petrodollars at the central bank, domestic spending rises. But unless the local economy has a lot of slack, it cannot magically produce more goods and services to meet this fresh demand. Their price instead rises, relative to the price of things that can come in from overseas. According to a study by three IMF economists, a doubling of the oil price results eventually in a 50% rise in the price of non-tradable goods (such as housing), relative to tradables.

This shows up as inflation. But the price rises should peter out once they have served two useful functions: diverting demand to goods from abroad, and increasing the supply of those goods and services that must be produced at home.

You can see this macroeconomics at work all over the UAE. By Dubai's old creek, wide-bottomed dhows, moored four abreast, are hidden by the cargo piled on the wharf. Car parts from Germany, seedless tamarind from Myanmar and basmati rice from Pakistan are offloaded by small cranes from China. Meanwhile the price of housing, a service that must be consumed where it is produced, is soaring. In Dubai, rents rose by 30% in 2006 and another 17% in 2007. The government has tried to cap increases at 5% this year, but landlords turf tenants out on any pretext and charge 30-40% more when they re-let. Office space in Dubai now costs almost as much as in midtown Manhattan.

A camel-boy from Bangladesh

Some goods and services cannot be imported, but the labour required to produce them can be. In the Gulf, immigration serves almost as a tool of macroeconomic stabilisation, keeping wages contained. Illiterate young men from rural Pakistan fly into Riyadh, Saudi Arabia's capital, their passports signed with a thumbprint. At the luggage carousel, they pick up bundles of oranges they will sell before taking up jobs driving trucks or twisting steel across the kingdom. In Dubai, workers from South Asia are shuttled in from desert labour camps in the same yellow buses that ferry American children to school. They file on to construction sites, an arm draped over the man in front.

The Gulf has long assumed this queue of workers was endless. But some construction companies now struggle to find ready manpower. Labourers have dared to demand better wages. On March 18th hundreds of workers in the emirate of Sharjah torched cars and buildings in a labour camp in a protest over pay. In February 45 Indian builders were condemned to jail and deportation for violent protests.

The migrants have some backing in their home countries. In Bahrain, the Indian government has requested that their nationals be paid a minimum wage, much to the resentment of the Bahraini government. But Bahrain is itself pioneering a sweeping reform of its labour market, designed to make foreign labour more expensive. From July 1st it will charge companies a monthly levy of 10 dinars ($26) for each foreign employee on their books, in addition to a visa fee of 200 dinars.

This ambivalence towards foreign labour is shared across the Gulf. The native-born want to enjoy the profits and products that immigrant labour makes possible. But they do not want to face the competition immigrants bring. Foreigners do 60% of private-sector jobs in the GCC region; in the UAE, they do over 90%. Even Mr Musabha, the camel-owner, employs a young apprentice from Bangladesh.

Many nationals find work instead on swollen government payrolls, underwritten by petrodollars. But Bahrain's oil-fields are running dry and Saudi Arabia's deep reserves are spread thinly over a large population (25m) that is growing faster than oil output. The country is no stranger to poverty. In old Jeddah, beautiful coral houses sink into dilapidation. Elderly women watched by stray cats search for the best picks from the city's rubbish skips.

The Saudi and Bahraini states cannot afford to employ every citizen who wants a job. But the “petrodollar wage” still casts a long shadow, setting expectations and raising living costs. Elsewhere in the world the private sector would compete with the government for labour, offering comparable pay. But in the Gulf private employers hire immigrants instead. This leaves many Saudis and Bahrainis in limbo. They cannot count on a government job; nor will they settle for a low private-sector wage.

Licensed layabouts

According to McKinsey, the Gulf economies need to create 280,000 jobs a year to employ the young citizens graduating from schools and universities. But despite some of the lowest student-teacher ratios in the world, many emerge with few marketable skills. One response is to force companies to hire locals, imposing quotas in the name of Omanisation or Saudi-isation. But this measure undermines the work ethic of locals and the morale of immigrants. McKinsey reckons a quarter of native employees in Bahrain, Saudi Arabia and the UAE fail to show up for work.

Another response is to foster new industries other than oil, which employs too few, and construction, which pays too little. Saudi Arabia has made progress privatising telecoms, liberalising airlines and opening up financial services. It is also pinning great hopes on its economic cities, of which KAEC is but one of six. The others include a Knowledge City near the holy city of Medina; a city based on steel, copper, aluminium and other heavy industries in Jizan; and a fourth that will nurture agri-business in Hail, which produces 90% of the country's corn and a third of its potatoes. All told, the cities are supposed to create 1.3m jobs by 2020.

Unfortunately, the region's diversification plans lack much diversity. For example, no fewer than 11 aluminium smelters are in the works, on top of two already in operation in Dubai and Bahrain. Mr Sfakianakis suspects the Gulf's governments have heard the same advice from the same cadres of consultants. The GCC is guilty of a “me-too” approach to industrial development, says a report by the National Bank of Kuwait, which raises the risk of over-capacity not just in aluminium, but also in petrochemicals and property.

In the small Gulf countries, such as Kuwait and Qatar, the economic task is rather different. Their governments' hydrocarbon revenues last year amounted to about $60,000 and over $90,000 per citizen respectively. These resources will not last for ever, of course. But that does not mean they need to diversify their production. By investing the proceeds of their energy sales in a broad range of assets, they can diversify their income instead. Over the long run, a diversified portfolio of stocks, bonds and property is likely to outperform oil anyway.

Their economic fate is the one imagined by John Maynard Keynes in his 1930 work, “Economic Possibilities for our Grandchildren”. In an age of easy prosperity, the struggle to ensure the citizenry is employed gives way to the challenge of keeping them occupied. How to avoid becoming a nation of coupon-clippers?

Abu Dhabi is experimenting with a more interesting future. In February ground was broken on the Masdar Institute of Science and Technology, the first step in an initiative to foster renewable-energy technologies, from conception to manufacture. The initiative will be based in a small eco-city, which will invite its citizens to economise on energy and escape from their cars.

The ground-breaking ceremony was powered by 24 solar panels of various designs, each competing for the bid to serve the city. In the site office the electricity meter turns backwards, an early example of Masdar's ambition to contribute electricity to the national grid beyond the power it needs to run itself. In a country dedicated to driving and drilling, Masdar is bold, perhaps quixotic. It is an attempt not so much to diversify the economy as to invert it. Is it a folly? The beauty of Abu Dhabi is that it has the money to make it work, and the money not to worry too much if it fails.

posted by jingying khor @ 10:58 PM 0 Comments

Buffett feels he pays too little in taxes...

posted by Desmond @ 8:41 PM 0 Comments

Warren Buffett being interviewed about the subprime lending market

Q: What do you think about what’s going on in the subprime lending market?

W.Buffett: Lots of people borrowed money to buy houses that they don’t want to own anymore, or can’t make the payments on. Intermediaries and lenders will suffer. Will it spill over into other parts of the financial system? My guess is no. If unemployment doesn’t go up and interest rates don’t rise, I don’t see the subprime mess being a trigger for a wider financial contraction.

We’ve looked at the 10Qs and 10Ks of a number of financial institutions. A number are accruing earnings on loans even though the borrower is making only the lower option payment. I think it’s a case of dumb lenders lending to dumb borrowers. The growth in subprime was largely a bet that housing prices would keep rising. It worked until it didn’t. It’s similar to what happened to the manufactured housing industry in the 1990s. When supply expanded, some borrowers didn’t want to own the asset unless its price kept going up.

On a lot of these defaulted loans, the borrower didn’t even make the first payment. Early-payment defaults shouldn’t happen. That happened in the late 1990s in manufactured housing. When loans are packaged and securitized and local lenders aren’t part of the process, discipline leaves the system. You’ll have some faraway institution making a loan on a piece of property, and the local lenders will know that it’s a crazy loan to make. But when those loans get securitized, discipline leaves the system. The overhang of bad loans hasn’t yet worked its way through the system. In some cases it will take a few years. The overhang is huge. People who thought they were flipping are the ones who are getting flipped.

posted by Desmond @ 8:26 PM 0 Comments

BP and Shell Downplay Record Profits

http://img.timeinc.net/time/daily/2008/0804/bp_shell_0429.jpg

They may not agree on the causes of the problem, but oil companies and OPEC agree that prices won't come down for the foreseeable future

But you just can't keep Big Oil down. Trouncing analysts' expectations Tuesday, BP and Royal Dutch Shell, Europe's largest oil companies, delivered record profits for the first quarter of 2008. Anglo-Dutch firm Shell netted $7.78 billion in the first three months of this year, up 12% over the same period in 2007. Profits at rival BP, meanwhile, swelled by almost half to $6.59 billion. Shares in each firm climbed almost 5% on the news.

At the heart of that growth for both companies were bumper profits from exploration and production units. Those at Shell's climbed 52% to more than $5 billion, and BP's did even better. But given the surging price of a barrel of oil, both businesses must share the plaudits with the markets. A spiraling dollar and jitters over supply have helped drive oil prices up almost a quarter this year, reaching a fresh record of almost $120 on Monday. An end Tuesday to the two-day strike over pensions by refinery workers in Scotland — which had earlier halted much of the North Sea's oil production and wreaked havoc with gas supplies in Scotland — won't do a nervous market any harm. But there's little sign of oil prices easing significantly in the short-term; Chakib Khelil, president of OPEC, the oil producers' cartel, admitted Monday he couldn't rule out prices hitting $200.

That's good news for shareholders in the likes of BP and Shell. But results like these can rankle consumers caught up in a cooling economy as gas prices at the pump steadily rise. Little wonder that results like these aren't trumpeted these days, but rather carefully explained. Record profit announcements from major energy firms are nothing new; those inflated oil prices have triggered a string of them in recent months. But the slowdown currently underway in the U.K., for instance, "puts a bigger bonus on these companies to explain lucidly what exactly that means," says Simon Webley, research director at the Institute of Business Ethics in London, which counts both BP and Shell as supporters. Petrol retailing, for instance, accounts for "very little of their profits," he says, "mainly because of the huge tax take from that. They will also have to point out the prices of investing in new resources is very capital intensive."

Sure enough, Royal Dutch Shell Chief Executive Jeroen van der Veer limited himself to calling the results a "competitive set of earnings." And he was quick to point out that "Shell has the largest capital spending program in our industry today, to ... play our part in ensuring that energy markets remain well supplied." That slight air of defensiveness is easy to understand. Where corporate profits are concerned, "everybody thinks it goes into the pockets of senior people," says Webley. "That is far from the case." The suggestion is that Shell and BP's profits will be plowed back into exploration rather than into, say, London's real estate market, which has been goosed up for years by bonuses from the now hurting financial sector. It's an important distinction, but it may not be enough to placate everyone.

-lynette

posted by nette @ 9:50 PM 0 Comments

A SWEET DEAL =)

Mars will buy Wrigley

IT IS a little over a month since Wrigley, the world’s biggest gum-maker, announced that it would improve the taste of its favourite goods and introduce new flavours and whizzier packaging. The brand’s added allure was quick in making an impression. On Monday April 28th Mars, another American confectionery giant, and Warren Buffett's investment firm, Berkshire Hathaway, agreed to team up to buy Wrigley for some $23 billion. The deal will give rivals in the world’s sweets industry plenty to chew over.

For several years Wrigley, Hershey, Cadbury, Mars, Nestlé, Kraft and other big confectionery firms have been in on-and-off talks in a variety of permutations. Yet among all the big corporate tie-ups under discussion a union of Mars and Wrigley seemed the least likely. Mars is a private company. The Wrigley family controls the gum firm. And both seemed to guard their independence fiercely.

One reason that both parties were keen to do a deal is that the newly minted firm will control a sizeable slice of the world’s confectionery market. Wrigley and Mars, the company behind Snickers, Twix and Mars chocolate bars, will have a share of about 14.4% of the market compared with 10.1% for Cadbury. And like Cadbury the new sweet giant will be strong in gum, chocolate and sugar sweets—the three main types of confectionery.

Mr Buffett and Mars are paying generously for Wrigley. It represents a 28% premium over Wrigley’s current share price. The sugar coating for Bill Wrigley Junior, the great-grandson of the company’s founder, is that he will remain executive chairman. He can keep his management team and Mars, mindful of its close association, will let Wrigley remain based in Chicago. The Wrigley building is a Chicago landmark. Wrigley field is the home stadium to the Chicago Cubs, one of the most popular baseball teams in the country.

Mars (with Mr Buffett’s help) is prepared to stump up such a sum for Wrigley to bring greater strength and diversity to its business. Wrigley operates across the globe, making most of its sales outside America, and has done well in fast-growing markets such as China, India and the Middle East to counteract weaker growth in America. Wrigley has been facing tougher competition in the American gum market from Cadbury since the British firm bought Adams, a rival gum-maker, from Pfizer in 2003.

Cadbury has the most to fear from a bulked up Mars. Next week it becomes a standalone confectionery company when it lists Dr Pepper Snapple Group, its American fizzy-drinks business. Spinning off that business is intended to allow Cadbury’s to sharpen its focus on confectionery. The emergence of a much bigger rival might spur a bid for Kraft's confectionery unit. But it would struggle to find the cash for a large acquisition. Cadbury had wanted to sell its drinks arm to provide it with a bumper war chest, but hopes for a private-equity deal foundered last year as conditions in credit markets deteriorated. It is also under intense pressure from shareholders to lift margins.

Switzerland’s Nestlé has far fatter coffers than Cadbury. Although anti-trust issues would prevent Nestlé from buying Cadbury’s British chocolate business, it might be interested in the group’s fast-growing gum brands. On another front Kraft may be weighing a bid for Cadbury rather than wait for Cadbury to make a move of its own. To spruce up its lacklustre performance Kraft must move into businesses with higher growth such as gum and sugar sweets and into booming emerging economies, where Cadbury derives over one-third of its sales.

After many failed attempts to come to an understanding, Hershey, America's biggest chocolate-maker, and Cadbury could revive their merger talks. The two are a near-perfect fit, but Hershey cannot afford Cadbury, and Cadbury cannot buy Hershey without the approval of the trust that controls the firm. So far the Hershey Trust has stubbornly insisted that it is unwilling to relinquish its 78% controlling interest in the company. One crumb of comfort for Cadbury is that Hershey, faced with a formidable new rival in its home market, might rethink a tie-up.

Merger and acquisitions

There are three sorts of mergers: horizontal integration, when two similar firms tie the knot; vertical integration, in which two firms at different points in the supply chain get together; and diversification, when two companies with nothing in common jump into bed. These can be a voluntary merger of equals, a voluntary takeover of one firm by another; or a hostile takeover—in which the management of one firm tries to buy a majority of shares in another.

Merger activity generally comes in waves, and is most common when shares are overvalued. The late 1990s saw fevered activity. Then the pace slowed in most industries, particularly sfter september 11 2001. It picked up again in mid-2003 as companies that weathered the global recession sought bargains among their battered brethren. By the start of 2006 mergers and acquisition boom was in full swing, provoking a nationalist blacklash in some European countries. The future of the merger wave now depends on how deep the downturn in private equity proves to be.

posted by jx @ 8:34 AM 1 Comments

ARTICLE! ((:

Hello 7c! since weijian has been beckoning us to play his wii, i think i shall talk abt wii!Months after release, demand for Nintendo's Wii still far outpaces supply July 2, 2007 (http://www.iht.com/articles/ap/2007/07/03/business/NA-FEA-TEC-US-Wii-Demand.php)NEW YORK: By 9 a.m., the line outside Manhattan's Nintendo World store was snaking down the block.More than 100 hopeful Wii owners came from as far as New Jersey — some as early as 6 a.m. with kids and grandparents in tow — to get their hands on the gaming console best known for its wireless, motion-sensitive controller.It's been more than seven months since Nintendo launched the Wii, but the consoles are selling so well that supply still hasn't caught up with demand. You can get one, sure, but be prepared to call around and arrive promptly when the shipments do."I had to get permission from work," said Regina Iannuzzi, 23, in line since 6:20 a.m. on a recent morning. She'd been looking for a Wii, a 25th birthday present for her brother, for two weeks. Every place was sold out.Like sleeping in? Wiis are also available online, but at a hefty premium to the console's $250 (€184) retail price. A slightly used one from an Amazon.com seller called "Hard-To-Find-Stuff" recently listed for $595 (€438) plus $3.99 (€2.94) shipping. Another cost $398 (€293) from a different seller."The PlayStation 1 was certainly a big introduction, but I don't recall any game system more than six months after its launch still having this kind of demand," said Chris Byrne, an independent toy analyst.Back in April, Nintendo President Satoru Iwata acknowledged an "abnormal" Wii shortage. Since then, the company has increased production "substantially" to help meet worldwide demand, said spokeswoman Perrin Kaplan.But Nintendo also has to manage its inventory, said Colin Sebastian, an analyst with Lazard Capital Markets."Unfortunately you can't ask a contract manufacturer to make a million a month, then 5 million," he said.Sony's PS3, which launched within days of the Wii last fall, is readily available in stores and online, but sales have been lagging behind the Wii. Cost could be one reason for this: the PS3 retails for up to $600 (€442).More than 2.8 million Wii consoles have sold in the U.S. since the November debut, according to the NPD Group, a market research company. That's more than double the number of PlayStation 3 consoles sold. And Nintendo plans to sell 14 million worldwide in the current fiscal year, which ends next March."You see it and you want it. Kind of like the iPhone," said Robert Marcus, waiting to buy a Wii with his wife and three young sons.Nintendo's selling point for the Wii has been that it's for everyone: not just hardcore gamers or young men with impeccable hand-eye coordination. Its intuitive motion-sensitive wireless controller lets players mimic movements for bowling, tennis or sword-fighting instead of pushing complex combinations of buttons.Twelve-year-old Gabriel Benitez, in town from Florida visiting his grandmother, stood in line outside Nintendo's flagship New York store."We finally got enough money for it," he said, glancing at his grandmother who was waiting with him. "The last two stores were sold out."Gabriel likes the Wii's wireless controller and the mini-workout he gets while playing a game."I just hate what you have to do just to get one," he said.It's not just kids who want it.Rein Auh, 30, never owned a console, but he decided to buy a Wii so he and his wife could have some fun and get some exercise. He spent $350 (€258) at the Nintendo store on a Wii and some extras. Walking out of the store, he looked back at the crowd of people still waiting."It's kind of crazy," he said. "I mean, it's been 7 months."For its part, Nintendo says demand for the consoles has absolutely exceeded expectations."We are trying to move them as fast as we can," Kaplan said.Demand for video games usually soars around the holidays and tapers off for the rest of the year. Not with the Wii."People are looking at it as something they really want to have in their home," said Byrne, the toy analyst. This means people aren't just buying them as gifts, and the shopping frenzy usually reserved for the holiday season has stretched into the summer.Toys "R" Us gets regular Wii shipments in all its stores around the country, but demand is so great they sell out immediately, said spokeswoman Kathleen Waugh. On the toy store chain's Web site, the consoles have usually been "temporarily not available."On a Sunday morning in Brooklyn's Bensonhurst neighborhood, the Toys "R" Us opened an hour early for Wii buyers only. Though nothing like the bustle of Manhattan, a small line of teenagers, 20-somethings and families formed outside as a clerk handed out numbered slips of paper.Inside the store, like two weeks earlier at the Best Buy across the shopping center's parking lot, the systems didn't even make it to the shelves before they sold out.At some point, of course, supply will catch up with demand. But some analysts don't see this happening until next year."I don't think by the holidays," Sebastian said. "But maybe by the middle of next year, perhaps they can add another production line."_________________________________________________________
This article illustrates many economic concepts. As can be seen by the demand of wii, it is currently seen as a fashionable good, as everyone wants it. Hence, consumers will not be greatly affected by the price. Also, we can see that wii has very few close subsititues. Thus, it is price inelastic, since the rise in price will result in a less than proportionate increase in quantity demanded. Therefore, to increase the producer's total revenue, it should increase its price. However! Nintendo decided to cap the retail price of the Wii at $250 US dollars, which contradicts the concept of price elasticity. This may be because Nintendo wishes to build up its customer loyalty to further differentiate its product from some relatively close substitues (i.e. PS3/ Xbox).To account for the unexpectedly high demands for wii, we can look into the different factors:changes in consumer income, changes in taste and expectations, changes in price of related goods.Basically, wii is seen as a whole new form of gaming as compared to the old Xbox 360 and PS3. Its highly innovative construct offers consumers greater satifaction due to the new realm of gameplay which is very much different from the past. Due to technological advancements, Wii can actually allow one to swing the Wiimote as if playing the real thing, instead of just pressing buttons which is boring. The more enhanced form has probably attracted a larger audience to purchase this good. This gameplay is much more appealing to modern day health-conscious people since it involves the whole body in its more engaging and healthy form. The increase in demand for Wii may be also due to effective advertising and marketing. Furthermore, the price of related goods such as Xbox and PS3,is very high. Thus, consumers will generally turn to cheaper alternatives, which is thence the newer, more innovative Wii!For the supply side of things, we actually see a problem, that is, the producers are unable to produce enough goods to meet the increasing demands of Wii. It is apparent that Wii faces a price inelastic situation in supply- when the demand increases, price increases significantly while the output increases less than proportionate.This can be explained by the following factors: number of firms in the industry, length of the production period, existence of spare capacity. Although there are some relatively close substitutes to Wii, Nintendo is seen as a "monopolistic player"in the gaming industry since Wii is still very much a differentiated/unique product(as mentioned earlier). Since Wii is a new technology, requiring perhaps new raw materials and components, hence, it is not readily available yet and requires perhaps substantial production period. All these will thus lead to price inelasticity of supply, causing the supply not being able to meet the demand.When faced with a shortage(DD>SS), we have to decrease the demand such that the supply can meet the demands (DD=SS) such that we reach a new price equilibrium that is higher. Thus, to alleviate the shortage, what can be done is to increase the price of Wii. Furthermore, since Wii is relatively price inelastic, raising the price can actually increase the total revenue.useful links related to Wii!
http://sg.news.yahoo.com/rtrs/20080424/ttc-tech-nintendo-results-dc-96247d2.html
http://www.straitstimes.com/Latest+News/Money/STIStory_230966.html
http://www.todayonline.com/articles/250122.asp
-HUNGMINGCHOU ((:

posted by deathnote @ 7:57 AM 1 Comments

china and india!

China and India are known as the Asian giants and currently they are known as the engines of world economic growth. However incredible may it sound the fact is that China overshot US to become the ace contributor in the economic growth of the world.

There has been a rise in demand for raw materials, food and energy by as many as 2.5 billion Indians and Chinese . Such growth has sent ripples all over the world. Even then it would be wrong to underestimate the US economy. The consumption of grain per person in US is three times higher when compared to China and five times higher when compared with India.

China and India have reached a status from which it would need only a decade to become global providers of sustainable energy and agricultural products.


China and India as propellers of world economic growth

1. Both China and India are world leaders in renewable energy sources. This has invited foreign as well as domestic investment.

2. The countries United States, India China and Europe consume about 75% of the biocapacity.

3. The outstanding growth of India and China has also helped in the reduction of poverty. Now the number of people who survive on $1 per day are below one billion. World Bank recorded a downfall in the extreme poverty level by 80 million and has attributed this fall to growth of the most populated countries of Asia, that of India and China.

4. A survey shows that by the next 15 years India and China would be greatest contributors in the economic growth of the country. It is estimated that by the year 2020 the economy of China, as measured using the Purchasing Power Parity, will be at the same pedestal as that of US. The share of Asia in the total global economy would also rise as a result of this to about 43%.

5. The expanding Global economy would require an increasing workforce of 471 million, 142.4 million of which would be supplied from India. China would be the second contributor followed by US.

Posted by Lynette

posted by nette @ 4:27 AM 0 Comments

Rice and politics

Needed: a new revolution
Mar 27th 2008 | BANGKOK
From The Economist print edition

How bad policies crimp exporters



THE soaring price of rice and dwindling stockpiles of Asia's basic food are causing anxiety across the region. In particular the Philippines, a big, hungry country which cannot grow enough to feed itself, could be in trouble. The front pages of Manila's newspapers scream about a “rice crisis”, as politicians float drastic solutions, such as forcing the country's 100 leading firms to take up rice farming. Farmers in Thailand, the world's largest rice exporter, are delighted with the price surge, although some were said this week to be organising patrols to protect their crops.

The president of the Philippines, Gloria Macapagal Arroyo, last month pleaded with Vietnam, the second-largest exporter, to guarantee supplies. The two countries signed an agreement on March 26th, apparently to do just that. But the various escape clauses that Vietnam secured suggest it was more of a face-saving measure than a firm pledge. Vietnam and India, another big rice exporter, have recently announced export restrictions to try to curb soaring food prices at home. This will make it tough for poor, rice-importing countries, in Africa as well as Asia, to secure supplies.

Until a few years ago, rising harvests satisfied the growth in rice demand caused by population growth and Asia's success in cutting poverty. But recent wobbles in output have reversed a long-term trend of falling prices. They have also left global stockpiles at their lowest since the 1970s.

Political consequences may follow. Mrs Arroyo came to office in a “people-power” revolt in 2001 and her grip on office is tenuous. Hunger could be the excuse the opposition needs to bring Filipinos to the streets. So Mrs Arroyo is straining to be seen doing something about food: posing for photos at grain warehouses and pledging to crack down on the fiddling of subsidised rice supplies.

Indonesia's president, Susilo Bambang Yudhoyono, had hitherto been expected to sail to re-election next year. But costly food and rising poverty may endanger him. That Mr Yudhoyono made a show of completing a doctorate in agricultural economics during his 2004 election campaign only increases his potential for embarrassment. He has tinkered with, not abolished, Indonesia's absurd restrictions on rice imports. These, like the Philippines' rice import tariffs, were intended to protect poor rice farmers when prices were low, but they hurt poor rice eaters, a larger group.

This week a senior Indonesian official said the country had reached its goal of becoming self-sufficient in rice. Mr Yudhoyono later contradicted this, by saying Indonesia would need to continue importing Thai rice for now. Even if Indonesia attains self-sufficiency soon, it will be hard to maintain. The Philippines became self-sufficient in the 1980s, only to relapse into deficit, despite an expansion in its paddies.

Nature affects countries' ability to grow rice—but so does governance. An extreme case is Myanmar. Once it was the world's biggest rice exporter, and it still produces a small surplus. Yet many of its people go hungry, thanks to a crude, cruel regime.

Robert Zeigler of the International Rice Research Institute—a driver of Asia's “green revolution” in the 1960s—says governments are now paying for years of neglecting agricultural research and irrigation. They have lost prime land and water supplies in the rush to industrialise.

Simply reducing disparities in productivity, even between identical fields in a given district, could solve Asia's rice worries for decades to come. That would require, for instance, ensuring farmers can buy higher-quality seeds, which in turn would require more funding from governments for old-fashioned things such as cross-breeding existing strains of rice.

A report this week from the UN's economic commission for Asia said a boost in farm productivity could lift more than 200m Asians, a third of the region's poor, out of poverty. Asia's masters may need a new green revolution, if they want to avoid upheavals of a bloodier hue.

Posted by Julia (:

posted by - @ 7:35 PM 0 Comments

Microsoft

Tuesday, August 10, 1999 Published at 20:37 GMT 21:37 UK

Business: The Company File
Microsoft war of words continues


The Department of Justice has accused Microsoft of being a monopoly The US Justice Department has reiterated charges that Microsoft acted unlawfully to wipe out competition in the personal computer operating systems market in order to preserve its monopoly.

Microsoft fired back by claiming that the US Government had failed to prove its claims against the software giant in a prolonged trial that began last October.

The war of words came as both sides handed in hundreds of pages of papers to US District Court Judge Thomas Penfield Jackson. The submissions are designed to summarize each side's version of the facts.

The papers mark the beginning of the end of a titanic tussle between the US Government and the largest company in the world.

Judge Thomas Penfield Jackson will now give Microsoft and the Department of Justice one month to study each other's documents and come back to him with any changes.

After final courtroom arguments, he will give his ruling, probably late this year, but possibly not until early in 2000.

Settlement unlikely

There is still a possibility that an out-of-court settlement could be reached. The sides have met several times since the trial began in October, but observers think it unlikely that they will come to an agreement.

Microsoft is accused of illegally using monopoly power in the software industry to crush potential rivals.

It is likely to argue in its court filing this week that there has been no evidence that its actions have hurt consumers, which would have to be proved to support a guilty verdict.

Netscape has now been bought by AOL - evidence, says Microsoft, of how competitive the market is.

It is also essential to prove that a company wields monopoly power, which Microsoft disputes. It will argue that it did not illegally discourage computer makers and Internet providers from using Web browsers made by its rival Netscape.

And it will maintain that America Online's purchase of Netscape demonstrates how competitive the market is.

The government contends that Microsoft does hold monopoly power, and that computer makers and the public have no mainstream operating system alternative and must accept its prices.
It claims the company choked Netscape's avenues of distribution.

posted by Anonymous @ 3:19 AM 0 Comments

Guidelines for choosing Insurance Policies

It is wise to start investing early(esp when we are young and healthy)!!!

Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss.

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium. An insurer is a company selling the insurance.

The insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage



Some guidelines:

Familiarize yourself with your plan, noting any restrictions (e.g., prior referrals needed, limits on number of visits, deductibles, out-of-the-area coverage, co-payments, etc.).

Some insurance plans provide only emergency coverage for out-of-area care and/or require a prior referral from the primary care physician at home.


When selecting health insurance,
read about the plan so you know what to expect.

Take particular notice of the following:
1.Deductibles you need to meet before your insurance pays
2.Co-Payments
3.Restrictions/Exclusions in coverage
4.Specific limits of coverage
5.Out-of-area coverage
6.Prior approvals and referrals
7.Pre-existing conditions and waiting periods
8.Lifetime or per-occurrence maximums
9.Cost of the plan


posted by Fish

posted by Anonymous @ 2:58 AM 0 Comments

Oil @ $114.00!!!

Oil @ $114.00, AT&T laying off 1.5 % of work force, Citibank 5.1 Billion in the red for the first qtr, and the market goes up over 200 points?! What is really going on here? Anyone care to comment?

Posted by Mr Chris Ho

posted by X Ho @ 7:02 AM 0 Comments

oil prices on the rise

A clip on the reasons for the rising prices of oil to over $100 per barrel.

Posted by Jing Xuan

posted by jx @ 10:29 PM 0 Comments

subprime.

posted by Lik Tak @ 5:38 AM 0 Comments

Merger!

Posted by Lik Tak

posted by Lik Tak @ 5:36 AM 0 Comments

Sample of Article Review

This is a sample of an article review that Miss How posted on SMB. Use this as a guideline when you are doing your article review for the econs blog.


Posted by Mr Chris Ho

posted by X Ho @ 8:08 PM 0 Comments

Participate in Wanted! to Earn CASH, Participation Points, GNA$, etc

posted by X Ho @ 7:46 PM 0 Comments

Ford + GM = Gord?

Indecent Proposal? What a Ford/GM Merger Could Mean

Would Americans Buy Cars From A Company Called 'Gord'?

By DAN ARNALL
Sept. 18, 2006 —

Times are so tough in the American auto industry that the country's two biggest nameplates have actually talked about a massive combination. Reports out of Detroit suggest that GM and Ford had discussions about the possibility of a merger or alliance.

"It's a joke, there's no real meat on that bone," said Kevin Tynan, senior auto analyst at Argus Research Company. "They need to get smaller, not bigger. They need to be more flexible, not continue in their old way of doing business."

But the tantilizing possibility of a mega merger has many industry experts rubbing their eyes in disbelief, wondering if these two icons could actually find a way to marry, and if they did, how that would change the auto industry landscape.

"Does it become General Ford? Gord? Ford Motors?" asked Karl Brauer, editor-in-chief of auto web site Edmunds.com. "That's actually one of the strengths of a merger -- they'd be combining two of the world's most recognized brands."

Combined, Ford and General Motors would be a force to be reckoned with.

Based on their most recent sales reports, a merged company would have accounted for more than 4.6 million cars and trucks sold in the United States so far this year. That's an astounding 41 percent of the U.S. auto market and almost three times the size of Toyota's slice of the auto pie.

That new sizable company would have leverage with suppliers that neither has enjoyed for decades. Experts say a combination could allow for better deals on everything from steel components to tires, air conditioners to ad time.

But in this case, size doesn't necessarily make for success in the car business.

Today the companies are too big, with expensive plants that are not running and thousands of union workers they have to pay even when they do not need them. Combine that with the financial burden of pensions and providing health care to workers and their families, and you see that size can, in fact, hurt a company.

"Even if a merger happened, they'd still face these costs," said Brauer. "Becoming a single company doesn't reduce their obligations to the UAW or their health care costs. Unless they made these issues a part of the alliance negotiations and included the unions in whatever deal they struck."

Asian competitors Toyota and Honda -- both of which have made big headway in grabbing market share from GM and Ford in recent years -- have a younger work force, which means lower pension obligations and less expensive health care costs. Those foreign competitors have used those lower financial burdens to make cars in the United States for less than their American competitors.

A merger would allow the combined company to negotiate simultaneously with its unions about cost reducing moves, but GM is already a few steps ahead of Ford in cutting these costs with aggressive hourly-worker buyouts and layoffs of salaried managers.

GM chief Rick Wagoner says that the company's restructuring plan, announced late last year, has already succeeded in cutting some $9 billion out of the struggling company's expenses.
Ford's recent acceleration of its "Way Forward" plan is taking a line from GM's script, offering one-time payouts of up to $140,000 to workers willing to walk away from their jobs and drop corporate health insurance in their retirement years.

But success is not just about reducing costs. It is about making cars and trucks that people want to buy.

"You could easily end up with a stronger line-up of vehicles and nameplates," said Bauer. He says both GM and Ford have brands that they could jettison without having a negative effect on their bottom lines. Losing the car and truck nameplates that haven't found a place in the marketplace would make the overall car market stronger; a Darwinian thinning of the herd.
A big auto merger like the one reportedly discussed by GM and Ford has happened before. The $38 billion combination of Chrysler with German auto giant Daimler-Benz in 1998 offers a precedent. It took years and a shift in top management to get the merger to work.

"The real challenge will be getting somebody that can actually manage it and make it stronger, instead of just creating an unwieldy monster," said Bauer. "It would take a hell of a management effort."

But the speculation about a merged GM/Ford is just that: speculation.

Most analysts are not confident that a GM/Ford marriage is in the offing, pointing out that there's no real financial benefit to either company that would justify the Herculean effort of pulling off a combination.

http://abcnews.go.com/Business/IndustryInfo/story?id=2459206


Posted by Mr Chris Ho

posted by X Ho @ 11:22 PM 0 Comments

Video clip: Microsoft bid for Yahoo

Why do you think Google is involved in this?

Posted by Mr Chris Ho

posted by X Ho @ 10:49 PM 0 Comments

Video clip: Delta and Northwest Airlines Potential Merger

Do you think the merger between Northwest and Delta Airlines will work out? Why and why not?

Posted by Mr Chris Ho

posted by X Ho @ 10:35 PM 0 Comments