February 19-25, Finance and Economics: And the Award Goes to...Brazil's Hedge Funds, Russia's State Owned Banks, and Europe's Economists!

A few thoughts once again as we dive into this week's Finance and Economics section. For one thing, this has been a remarkable week for reasons I think we all know, and I am incredibly behind on my reading. How is anybody supposed to keep up with Tunisia, Egypt, Libya, Yemen, Bharain, and Lebanon - all at once? Which means that this week's submission comes at an even higher opportunity cost for me, so I expect all of you to keep me up to speed on everything else I should be reading (oh, like the other 100 pages of the Economist.) I have added a section at the end - a meager, wimpy section, that includes some of the more unknown or at least less familiar terms from the magazine. I will try to add to this throughout the week. I am also writing this while flipping between the Oscars and the Avalanche-Ducks game, so if there are more typos or missed thoughts this week than usual, forgive me. Finally, I realized that I left an entire article on food prices out of last week's submission - I don't know if I'll have time to get back to it, but I'll try.  Oh, and did any of you catch the typo in last week's print edition? (Hint - unless there's some weird convention in British English that allows a word starting with a vowel to be preceded by the article "a", I'm pretty sure I busted them this time.) If you saw it, drop me a line. If you're reading this. Hello? Anybody....?

This week the Economist:

• Shares the secrets of Brazil's red hot private equity and hedge fund markets (including some oversight and transparency that would have helped Madoff victims!)
• Assesses the invisible gravitational effect of central bank policy on stock prices in the midst of low interest rates and a high ratio of "low" to "high" savers (I had to read this one four times before I understood it, but I'll try to demystify below.)
• Speculates on the impact "Basel 3"  (a global regulatory standard on banking) rules requiring higher capital ratios (sound like a familiar trend we discussed two weeks ago?) may have on investment bank divisions in big banks like Barclays, JPMorgan Chase, and Credit Suisse.
• Touches on the rise of European economists as a larger proportion of contributors in the academic literature.
• Offers commentary on why Russia's state owned banks are both big players in that sector and perhaps nothing to fear for foreign owned banks.
• Remarks on the pitiable situation of Syria's private domestic banks who have to leap at the option of buying Syrian sovereign debt for lack of any other options.
• Concludes as always with an Economics Focus on why inflation in China is a good thing (for China.)

This Week's Fun Economic Facts (Lots of Brazil this week...):

• While OECD economies saw GDP decline by 2.7% in 2008 and 2009, Brazil's GDP grew by 4.9% - and by 7.5% in 2010.
• Brazil now has the eighth largest economy, and could become the fifth by the end of the decade, overcoming Britain, France, and Italy.
• Brazil is the world's largest exporter of sugar, coffee, and meat - and second to the U.S. in soy, and the second largest market for cosmetics and third largest for mobile phones.
• Brazilian backed investment firm 3G Capital bought Burger King  for $4 billion in 2010.
• Eight companies account for 50% of the market value of Brazil's main stockmarket, BM&FBOVESPA
• The latest price/earnings ratio, which measures (in part) the artificial level of share prices above their value, is 45% higher than its historic average.
• Between 1994 and 2006, the percentage of published economic research by Europeans (with an affiliation with a European institution) rose from 24% to 40% while American contributions diminished from 66% to 45%- but North American economists still contribute 75% of the articles in the top Economics journals.
• The assets of Russia's banking system amount to about 75% of GDP. Sound high? Some individual banks in Switzerland and the UK amount to more than 100%. 
• Chinese inflation, spurred by food prices, rose to 4.9% in January.
• While the yuan has only risen 4% against the dollar in nominal terms since 2009, its real exchange rate increase against the dollar was 17%, because the real rate is determined by measuring relative labor costs.

Follow me after the jump and we'll sort all of this out...

February 12-18, Finance and Economics: Exchange Markets, European Bonds, and yep, more emerging market inflation

Well, it was bound to happen. The Economist pulls out the big guns during a big news week. This week's section is not for the faint of heart. But that's why I'm here - an ignoramus trying to make sense of these concepts and maybe distilling them to the point that we can all get the gist. None of this week's columns are the nice little one-column jobs with the little red box on the same page as the title - nope, they're all the two pager goliaths - the kind where the two little red arrows exasperate with the promise of yet more analysis on the topic you hoped you could cover in a few minutes. So let's get to it.

This week, the Economist:

•  Poo-poos the importance of exchange market mergers, which have started to proliferate
• Speculates on the potential for sovereign bond market reform in the Euro-zone, 
• Prognosticates on the future of investment in emerging markets in the wake of the Egyptian revolution,
• Warns of a Chinese drought's effects on global food markets
• Ranks post-crisis economic thinkers
• Sheds light on Chinese trust companies
• Dissects Japan's chronic deflation
• ...and in Economics Focus, challenges the notion that severe weather has the impact most presume

...phew!

This week's fun economic facts:

• Despite raising 750 billion Euros in rescue funds, including 440 billion by the European Financial Stability Facility (EFSF), lending capacity is only 250 billion (yep, 1/3 of the total!), in large part because only six EU members have a AAA credit rating (i.e. more cash reserves are required for the lender to retain a AAA credit rating). 
• In the week of February 2, emerging market equity funds shed 1% of total assetts ($7 billion) due to uncertainty in Egypt. This represents the third largest withdrawal in history.
• The Economist's commodity price food index increased by over 6% in January (see last week's entry on rising food prices.)
• China maintains 60 million tons of wheat stocks (about a little less than ten percent of global output forecast for 2011)
• Emerging market shares trade at twice their book value - but get this, in 2000, "dotcom" shares were trading at seven times book value!
• The interest you can expect your deposits in a Chinese savings account to accrue is about 3%, while consumer prices are rising by about 4.6% - so you can expect to lose by saving in terms of real returns on investment.
• Japanese households are sitting on $18 trillion in savings

Follow me after the jump, and we'll get into the weeds (but not as far as the Economist does...)

Three Cool Stories for your mid-week CI hangover:

I don't want to start thinking I have a place blogging original thoughts. I want to retain the niche of exploring our favorite section of our favorite weekly and maybe get us all interested and a little bit better educated along the way (anybody else suddenly dropping terms like "convertable preference shares" this week?)

But in my limited reading time, and with some help from a friend, I came across these this week (although one is not from this week...) and thought you all might find them interesting. The first is an article from the New Yorker about Chinese stocks and the shadow companies they represent. China, the much feared economic juggernaut, treads fearlessly into our sacred world of capitalism with some good ol' book cooking. Fast learners.

The second was a superb radio clip from NPR's Marketplace about subsidies in the Middle East as a palliative for unrest. This phenomenon has started to really grab my interest, as countries like Yemen and Iran wrestle with how much of their public budgets should go to subsidizing prices on gasoline or bread. The IMF has made reduction of subsidies a tenet of many of its programs, but the social response may be untenable for regimes in the region.  An example of the use of IMF conditions relevant to subsidies can be found here, and a great treatment on Yemen's economy that highlights the paradox of subsidies that makes them difficult to stop can be found here. I also recall seeing an article on subsidies in Iran being the barometer for the political climate in country - I'll see if I can find it. This issue is ripe for a masters thesis.

Finally, an article provided to me by a friend (Patrick, I'm looking at you buddy) that reminds us that the winds of change can be transformative, but gradual. By the time the sky falls, we wonder how it happened. This one is short, and probably the best thing you've read today.

I know I need to get this week's version out soon, and probably stick to a schedule, but like you, I work full time, have a significant other (although she seems to be ignoring me these days for business school) and I have a dreadful addiction to terrible sports teams. (A 9-1 loss by Colorado to Calgary pretty much sums it up). This week's hopes rest with another George Mason win at Northern Iowa. I also, probably like you, dread the thought of actually sitting down and actually doing the writing it takes to keep this up - I am not, unfortunately, endowed with a furor scribendi. I'm off to see Robert Kaplan at SAIS (I know, I know...) so we'll catch up later.

February 5-11, Finance and Economics: Oil, Inflation, Spanish Saving. Ole!

This blog is for you. You know who you are. You read "Leaders". You read "The Americas". You peruse "Lexington" and "Banyon". You probably get as far as "Bagehot", flip through the "Briefing", end up on "Finance and Economics" and then bam - done - this week's "The Economist" is cast away by your ink-stained fingers, tattered, wrinkled, rolled, and only half-loved. I'm with you. This week, you might have caught the articles on Somali piracy, US Health Care, and Egypt, but, you lazy bums, because you won't explore the nether regions of everybody's favorite hebdomadaire, you missed a few gems, and this blog will wrap them up nice and neatly for you - at least until the Economist makes me take the site down.*

This week is a doozy. For one thing, the Economist loves Germany, probably at the expense of the Spanish. Secondly, inflation seems to be a problem - so buy those beers now. Finally, never you fret about Egyptian democracy's effect on your SUV road trip. So - we have articles on:

• A fascinating analysis of how much oil exactly flows through the Suez (along with a cool map) and why concerns about the effects of political turmoil on oil supplies might be overblown.

• Everything you wanted to know, and probably forgot, about inflation
  
• More depressing news about America's housing market
• Look out - Savings and Loan trouble hits Spain's Cajas?
  
• Felonious larceny of carbon credits- a doozy of a heist
  
• ...and one for the "did you know" category - Citi now owns the Beatles via EMI. Shocking.
• Let's not forget the Economics focus piece -a big salute to the German economy. (continuing The Economist's ill-concealed love affair with the Teutons.)
  

This Week's Fun Economic Facts:

• Egypt exports very little oil, and actually imports some, but 4% of the global supply transits the Suez canal.
• OECD oil inventories currently cover up to 59 days of consumption
• The most recent war in Iraq only disrupted global oil supplies for three weeks
• Inflation in India, nearly 10%, is still below last year's high
• The U.S. federal government currently guarantees 85% or more of newly issued resident mortgages
• Of the $50 billion allocated to the Home Affordable Modification Program (part of TARP) in 2009, only one billion has been spent, representing modifications to only 522,000 mortgages
• Home ownership in the U.S. fell to 66.5%, the lowest since 1998
• For the first time eastern Germany has a lower unemployment rate than California.

Let's do a quick run through after the break (don't abandon me now!):

A Response to Lexington and The Economist on Egypt...

Although I am intent on getting something written - today - on the most recent issue's coverage of business, finance, and economics, I felt I had to respond to two recent articles. One, Lexington's post "Was George Bush Right?" and the other, the cover story about the uprising in Egypt.

Let me state from the outset that I would never presume to suggest I know anything about the Middle East, or Egypt in particular. But I am particularly sensitive to a need to be humble about the state of affairs in highly complex societies and I also think we need to be cautious about rushing out to assess the merits or deficiencies of "democracy promotion" without considering the context of a policy.

Let's start by challenging Lexington's claim that "Mr Bush was indeed a far more active champion of democracy than Mr Obama has been." Is that true? Lexington suggests that Bush "nagged, scolded, bribed and bullied its allies towards greater democracy." and provides as evidence that "The Americans leant on Egypt to hold more open elections in 2005, and in 2006 they talked an astonished Israel into letting Hamas contest Palestinian elections in the occupied territories. Even the Saudis were prevailed on to hold some (men only) local elections". But let's deconstruct this. What were the constraints on the democracy promotion agenda? Even if the US nominally encouraged more "open elections", were they not, as their predecessors, simultaneously providing tremendous amounts of foreign assistance to President Mubarrak and gladly using the services of his intelligence apparatus to detain and torture terrorism suspects? Certainly Hamas did contest elections, and in fact prevailed in parliamentary elections in 2006, but the Bush administration responded by cutting aid programs to Palestians, not by celebrating the democratic process. This is not to suggest that the Bush administration should have forgone its strategic interests in Egypt or that they did not have the prerogative to use aid as leverage to persuade Hamas to moderate its positions. But to suggest that the "freedom agenda" took precedence at the cost of security, which was paramount in the administration, ignores reality, much in the same way that some suggest that the Bush administration changed course of aid programs, spending a greater proportion of development assistance in countries where the policies were more apt to encourage development. We know for a fact that this did not really happen. (Shameless self promotion.)

More After the Break:

Get on with it

Ok, so several months later and I've got to get this thing kicked off. Writing, blogging, whatever you want to call it, however you want to describe the act of expression, is the complement to intake, and must be done to let the brain develop. I suffer from recall problems - I can rarely recall what I've read, and very rarely describe in sufficient detail the nuances of a storyline or a political analysis. I subscribe to probably 10 magazines and 3 or 4 journals, and read only two (The New Yorker and the New York Review of Books) with any regularity. I read the others when I can - mostly when I fly - but I'm loathe to give up the subscriptions. The Economist is that breed of magazines that so frustrates the masses - a weekly newspaper, with 100 pages if not more, oft cited, oft referenced, oft linked in Facebook and Twitter feeds. But who is reading it? Who can make it through the random articles about inflation in Malaysia or the manufacturing sector in Germany? It takes a discipline I've never really had, but intend to attain.

So here is the deal - I'm going to write about the Finance and Economics sections, possibly about the business section, but there are some rules in play. I intend to comment on occasion about development economics, about the Middle East, and probably about US Foreign Policy. I also have a list of blogs I follow, including Bill Easterly's blog, a blog about fashion, etc. I may also write from time to time on other articles in The Economist or in other publications as I see fit. Gradually, I expect this experiment to accrue to my little brain the talents of recall and synthesis.

I also don't have a structure in place yet - I intend to over time develop a more coherent, a more deliberate architecture. I have learned that stream of concsiousness, as I am doing here, is hard to follow, adds little value to the reader, and is a bad and undisciplined characteristic of the writer. But I haven't come up with what that will be yet. Will I go so far as to outline? Probably not.

As my only follower, I can say, get on with it!