Apr 27, 2012

Social Networks - a Bubble but Just Getting Started

Facebook's acquisition of Instagram has raised a few eyebrows but also has plenty of VC's and entrepreneur-wannabes salivating. If a 2-year old company with 13 employees and no revenue can be worth a billion dollars, well then the sky is the limit! As long as you are in the right space.

Since any of the staid cashflow or income-based models do not apply to this amazing growth sector, we need a brand new way of valuing such companies. One way people are looking at the recent acquisition

Apr 24, 2012

Australian Dollar's Double Jeopardy

This week it feels like the AUD was punished twice for what is essentially the same "crime". On Monday morning Asian time, the Producer Price Index (PPI) disappoints, coming out 0.6% lower than expected. The Australian dollar promptly sells off against the USD and JPY. This makes perfect sense - lower PPI generally feeds into lower inflation, thus an increased likelihood of a rate cut at the next RBA meeting. So far so good.

Overnight, SPX stabilizes and most "risk" currencies bounce a little in line with the equity market. On Tue morning Asian time, Australia's Consumer Price Index disappoints by a roughly equivalent amount. On this data release, the AUD drops again.

Apr 16, 2012

A Contrarian View on China's Currency Move

The latest push by Beijing to accelerate the opening of China's capital account to foreign investment is undoubtedly a good thing. A good thing for the world as it helps reballance the global economy. However it is being hailed as a cure-all for China's slowing economy in China Currency Move Nails Hard Landing Risk Coffin. Not meaning to pick on Paul Markowski here (although as long-term adviser to Beijing he is hardly impartial) - this is the general view across the financial media at the moment.

We believe it is also incorrect. Beijing is clearly aware of the undeserved benefits that acrue to the

Apr 10, 2012

NAB Lowers Australia GDP Estimate. More Revisions to Follow?

It is starting to hit home that most sectors of Australia's economy are not benefiting from the riches generated by the export of natural resources to China. National Australia Bank, one of the big four banks in the country has lowered its GDP estimate for 2012, saying that

Despite a mining boom, the Australian economy has performed poorly in the first few months of 2012, and policy makers are expecting unemployment to rise in coming months

(See Australian Bank Cuts Growth Forecast For Economy).

The tentative decrease from 3.25% to 3% is quite modest and will most likely be followed by further

Apr 4, 2012

Australia Should Learn from Brazil in Fighting the Resource Curse

Australia continues to suffer from the "Dutch disease" with export revenues from the resource extraction industries pushing up the value of the local currency and thereby making manufacturing and the services (such as tourism) uncompetitive. This is a theme we have discussed before - see for example Australia's Two Speed Economy. The situation continues worsening, with an anticipated return to trade surplus failing to materialise in the Feb trade data released today (deficit of AUD -480mm, relative to consensus for a surplus of  AUD 1.1bn).

It should be quite clear that the strong currency is hurting many non-resource sectors of the economy. Yet other than including in their Monetary Policy press release a boilerplate statement to the effect

Apr 2, 2012

The China PMI Contradiction. Or Who Can You Trust?

Very often the simplest explanation is the best. Why did HSBC's China PMI show a 4th consecutive month of contraction in March, while the official numbers generated by the National Bureau of Statistics indicate continuing growth?

Two months ago in Can One Trust China's Economic Statistics? we looked at some indications that the official government statistics may be untrustworthy. As all the evidence points to a serious slowdown,

There May be Trouble in Beijing

Ever since the neo-Maoist princling Bo Xilai was dismissed from the top Communist Party post in Chongqing, rumours have been circulating of a military coup in Beijing. Asia Times writes
Rumor mills on China's active blogosphere were rife with claims that a military coup had occurred in Beijing, with gunfire, tanks and soldiers on the streets.
They do appear far fetched, and could be easily dismissed as such, if it weren't for the official denial and draconian measures against websites that may have facilitated their spread. In China arrests over