Quote of the Day:
Is zero interest rates and Quantitative Easing the recipe for full employment? I think that is the question …
Stephen Roach – Morgan Stanley Asia CEO
The Price of Growth
- People talk about economic growth as though it is the panacea to all our woes but if one follows this philosophy the prospect for growth distorts itself, we begin artificially simulating growth in the hope that prosperity will follow later. It doesn’t work that way, growth is a wonderful symptom of productivity and prosperity but simply putting up positive GDP numbers is not the way to cultivate a healthy economic outlook (or harmonious society).
- This article by Chris Martenson in ZeroHedge got me thinking a little – although Chris focuses a little too heavily on the World’s endless craving for fossil fuels, he makes some interesting points about the consequences of our growth addiction – namely inflation and scarcity.
- On the same topic, Stephen Roach, one of my favourite commentators, was in his element in Davos. As ever, he eloquently points to a “policy trap” the Central Banks have gotten themselves into – once they commit to an policy style they must constantly up the ante just to ensure that the consequences of such action do not shoot the economy in the foot. Interestingly, Roach chooses his words carefully, he talks of an economic “recovery” not growth at all cost.
- Roachie also made some interesting references to growth versus prosperity. In his latest comment “Occupy Davos”. In it he recollects a, seemingly hostile debate opened up to the Occupy Movement in Davos but there were some important takeaways and once again came back to the blind obsession with growth-at-all-costs. Here is the penultimate paragraph from the piece.
Yet one very reasonable suggestion emerged—the need to reformulate policy and regulatory mandates so as to ensure a more sustainable balance between growth and stability. That was music to my ears. Growth for the sake of growth—especially by relying increasingly on the destabilising financial engineering of asset bubbles, credit bubbles and a flawed currency union—has taken our system to the brink far too many times in recent years.
- I’ve commented before: growth and prosperity are not necessarily the same… and we should have the courage to aim for the latter… ALWAYS. And in doing so, ultimately achieve both.
Worrying Signs For Consumption
- This is not a panic, but I just wanted to voice a little concern for the thing which drives 70% of GDP: personal consumption.
- We already identified that of the 2.8% growth achieved last quarter 1.9% of it was inventory stockpiling. That’s inventory that needs to be shifted. So you’d expect retailers to be gaining a little momentum around now. But what worries me is that retailers like Amazon (and Tesco, here in the UK) appear to be stalling. What is particularly concerning is that these businesses strike to the heart of the economy – I do not know a family which does not use either one of the other.
- One to watch I think – something has got to give if we do not see a spurt in consumption H1 2012. It’ll either be the economic numbers or interim earnings.
Is Facebook The Next Google?
- In many respects this is the internet boom that we were all looking forward to in the 1990’s – it just came a decade or so later than we thought it would. Google was such a massive IPO back in 2004 that it really changed the game – internet IPO’s have been big business ever since.
- A lot has been made of Goldman not getting the IPO deal, but I’m not really surprised. Morgan Stanley has proven itself to be a market leader in this area and (whether justified or not) Goldman still needs to shake its image as the “biggest Hedge Fund in the World” if they’re to truly dominate the brokerage business.
- As you might expect, the hype is at fever pitch (again) but let’s remember not all the recent internet IPO’s have gone well – Groupon stock basically halved in the first month of trading. For Facebook, $100 billion is a pretty daunting number to place on any new listing – even though Google is currently valued at nearly twice that.
- So before we hail the “next Google”, let’s put things into perspective; Facebook has yet to realize the ad revenues in the same way that Google has (see Chart of the Day) and this is not exactly the perfect environment to market an IPO of this magnitude. But, all things considered, the internet space has been the one bright spot of recent years and I actually have faith that Morgan Stanley will prove their worthiness and place this with enviable perfection – I nervously wait to be proved completely wrong!
Chart of the Day
- US ISM Manufacturing 54.1 – roughly in line
- Belgium GDP came in negative again (that’s two quarters in a row)
- Nothing Significant
- Banco Bilbao [BBVA SM], Blackstone [BX], Deutsche Bank [DBK GR], Hitachi[6501 JT], Hynix [000660 KS], Kellogg [K], MasterCard [MA],
- Citi [C]
- None Found