Author Archives: Lila

IV An India Hand at the Daily Reckoning: What the Yonghy Bonghy Bo Didn’t Know 11/13/2006 (reprinted)

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From the Daily Reckoning archives — my first encounter with globalisation in India (we used this in the book). My note is down in the middle of the newsletter.
Mon, November 13, 2006 02:24:26 PM

From:

The Daily Reckoning

Subject:

Today’s Daily Reckoning:

Worthless Dollars in a Drafty Shack

The Daily Reckoning

Baltimore, Maryland

Monday, November 13, 2006

———————

*** What’s that? Greenspan isn’t always right?! We are shocked!

*** Toll Brothers CEO worries that there is no recovery in sight for the
U.S. housing market…

*** A special report from India…cars are now competing with people for
the same agricultural commodity…and more!

———————

*** Lila Rajiva sends us this note from Tamil Nadu, India: “Not only are the happenings here varied across industries, they are also
geographically diverse. Chennai prices and infrastructure are looking more
and more attractive next to the skyrocketing real estate and moribund
roads in Bangalore. But far-sighted companies are already looking past
Chennai to smaller towns. There is a lot of potential here, since the
growth that has taken place so far seems concentrated in the larger
cities. Foreigners writing about the country sometimes forget that there
are over a billion people here, and that most of them live in the
countryside and in villages and small towns.

“Small, of course, is a very relative term. A small town in India can have
a couple of hundred thousand people. And it can have wayward dirt roads
and power shortages at the same time as it has cutting-edge technology.

“That’s the case with Vellore. A dusty town ringed around by desolate,
rain-worn hills; and until recently known mainly for its Christian mission
hospital and college. Today, it’s a bustling overcrowded educational hub,
sprouting engineering colleges, the latest electronic gadgets, and a
supermarket. World Bank money has poured in to refurbish the old fort from
which the rebel Hindu prince Shivaji once fought the mighty Mughal Empire.
The Vellore Institute of Technology, which gets 7000 applicants, has been
featured in the Washington Post, and computer support and technical help
abounds. Getting on the net was a cinch. It only took a quick call to a
computer center that charged me a hundred rupees (less than three dollars)
for the cable and the house call.

Continue reading →

Amazon Blog: Do-Gooding Do-Do

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“Those who now speak of decoupling used to talk of globalisation. This is oxymoronic, you can believe in one or the other but not both,” says analyst James Montier.

Montier thinks that the world is bound to go the way of the American economy – down. If you pumped for globalisation and global growth when the going was good, he says, you can’t now argue for decoupling. You can’t now say that the global economy doesn’t depend on what happens here. That would be cognitive dissonance.

Here, I’ll take the part of cognitive dissonance. It’s what makes the world go round.

Mobs, Messiahs, and Markets is chock-full of it.

Critics have called that a terrible thing…..or terrific, depending on where they stand,
But if our detractors rested their case against us only on this, they’d have a non-starter on their hands. Anyone who’s sniffed a grand theory up close knows better.

Why?

Because the real world is a jungle and logic cuts only a very narrow track in it; we’d be foolish to mistake our little wayward path for the woolly thickets our machete didn’t get to.

There is no logical structure that doesn’t rest on a blind spot….there is no sense that does not have a foundation that is nonsense. (That’s from a piece I did on Tom Friedman).

In fact, a bystander watching the way we mangle language could be pardoned for thinking it our original sin. He’d see that we’re fooled not just by our theories, but by words themselves. Their sense and their nonsense.

“Mobs” is a book about words.

On my part, it started from my critical work on language; from studying propaganda and from my popular writing on the subject .

In “Do Gooding Do-Do” and “Developmentally Disabled,“ two pieces used in the book (incorrectly attributed in several places), I took a look at some common words used about economics … and got into trouble with progressive and conservative friends.

What did I say that was so bad?

I said that “free market” language is used a lot to support what’s essentially managed trade. And that “social uplift” language is used the same way.

But how can you not take a position, asked the critics, a la Montier. Isn’t globalisation

A Very Good Thing? Or A Very Bad Thing?

Is it?

Perhaps it’s neither…or both….
Perhaps it’s sometimes one thing..sometimes another.
Perhaps it’s just too complicated for slogans. Sometimes government regulations are the lesser evil. And sometimes the greater. Perhaps you can talk about globalisation….and also talk about decoupling. Perhaps, on most things with any complexity the best response is not the one the mob wants to hear – Yes or No.

The best response is – It Depends.

Activism: Virtual Rapist Takes the Rap in Rome….

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“An Italian man was jailed for more than two years for putting pornographic pictures of his ex-girlfriend on the Internet and sending them out in more than 15,000 e-mails.

The 32-year-old man had created a Web site that appeared to show his ex-girlfriend offering sexual favors and erotic games, with her phone number also on display….”

More at Reuters.

Comment:

Two years isn’t enough but bravo to the Italians for a good start. Now wait for the chatterati to howl about censorship. Punishing criminal behavior will be turned into an assault on free speech.

Of course it’s nothing of the sort. Publicly circulating pictures of this type is an assault of a very physical and damaging kind. In Iraqi Women and Torture (Chapter 8 of The Language of Empire) I argue that photographing and circulating nude or sexual pictures of women or men against their consent is an assault at least as bad as rape, and often much worse.

Our notions of consent and representation need considerable updating. I hope to be contributing something to that for the Routledge Key Concepts series.

Reuters piece mentions “Mobs” and herd behavior as a driving force in creating the recession….

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ANALYSIS-Fear of U.S. recession could help drive one

By Joanne Morrison
WASHINGTON, Feb 26 (Reuters) – Fear among U.S. consumers and businesses that the world’s richest economy could go into a recession, or may already be in one, could help push the economy over the edge and bring on an even deeper, longer downturn.
In the final three months of 2007, the economy screeched to a near standstill, dragged down by what many economists say is the worst housing slump since the Great Depression.
As a result, talk of recession has been on the rise among Main Street people as well as economists, the media and a number of high-profile analysts, including former Federal Reserve Chairman Alan Greenspan.
With the housing market showing no sign of reaching bottom and mortgage-related losses mounting at Wall Street firms, many experts wonder if all the talk may add to the tendency of people to dampen their economic activity and spend less.
In economic circles, the concept of self-fulfilling prophecies is not new. It is a facet of what classical economist John Maynard Keynes called the “animal spirits” that dictate consumer behavior and drives economies.
Already there are signs of consumers getting gloomy. The Conference Board said consumer confidence slumped to its lowest level in five years. A Reuters/Zogby poll released last week that found most Americans now expect a recession in the next year.
Consumer caution comes at a tough time for an economy already lumbering under the weight of a housing downturn and a critical time for the government’s plan to boost spending.
Many Americans will soon have extra money in their pockets from tax rebate checks that are a part of an economic stimulus package President George W. Bush recently signed into law.
The $168 billion plan aims to stimulate the consumer spending that accounts for two-thirds of the U.S. economy’s output.
But consumer anxiety could undercut the hoped-for effect. The Reuters-Zogby poll found nearly half plan to use their tax rebates to pay down debt or pad savings.
“I suspect we are entering a period where consumers are much more sensitive that there is a need to save,” said Michael Prebenda, global head of HSBC Direct, which released a study earlier this month showing that four out of five Americans plan to increase the amount they save this year.
“Tough economic times are changing the way Americans manage their finances,” he said.
In one measure of how recession talk might be entering the mainstream, a news search of the word “recession” on Web search engine Google generates more than 97,000 news story links, versus the 300,000 for the economy as a whole. (For comparison, Britney Spears generates 22,000.)
“The power of the pen means that as people read the things that we write, they are forming an impression and their impressions can become a self-fulfilling prophecy,” said Chicago-based economic consultant Carl Tannenbaum.
“While a self-fulfilling prophecy isn’t going to be a cause for the recession, I think it can make it worse and I think it very likely will,” said Stephanie Madon, an associate professor of psychology at Iowa State University who has studied self-fulfilling prophecy behavior.

NOT A NEW THEORY
“One of the things we know people do is that they tend to seek out information that they believe is already true,” Madon said.
Some experts say a collapse in “animal spirits” helped bring on the last recession in 2001 as businesses, worried about what the future would bring, cut back sharply on their investments.
Lila Rajiva, co-author of the book “Mobs, Messiahs, and Markets,” says a herd mentality can drive the economy to unsustainable heights and then exacerbate the lows.
“I think we are already in a recession and it’s the result of a mob mentality in the sense that all kinds of bubbles are driven by a crowd acting like a crowd,” she said.
While Keynes applied his “animal spirits” to business behavior, Harvard professor Jeffrey Frankel, a member of the private-sector panel that dates U.S. recessions, says the idea can be applied to consumers as well.
“There can be an element of self-fulfilling prophecy,” said Frankel. He said, in particular, it could be a channel through which economic downturns are transmitted from one country to another as consumers elsewhere begin to worry.
Other members of the business-cycle dating committee at the National Bureau of Economic Research, who have yet to determine if the U.S. economy has tumbled into recession, play down the role of fear in the latest consumer-spending slowdown.
“A decline in consumption might just be a return to normal, rather than self-fulfilling collapse,” said Robert Hall, the Stanford University professor who chairs the panel. He said softer spending was likely inevitable because consumers had saved so little in recent years.
Another panel member, Northwestern University professor Robert Gordon, also said the current slowdown had roots that lay somewhere other than in the human psyche.
“The currently evolving possible-recession (not clear yet) is being led by a huge decline in residential construction, which is clearly spreading to a credit crunch influencing other types of businesses and consumer spending,” he said in an e-mail.
(Reporting By Joanne Morrison; Editing by Richard Satran)
((joanne.morrison@reuters.com;+1 202 898-8315; Reuters messaging: joanne.morrison@reuters.com@reuters.net))

Trader Psychology: The Dash for Trash…

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“The most important thing to do is to stick with the processes that have served you well, but appreciate that the environment we are operating in may be altering. If in doubt, as I wrote last week, inaction and hence holding cash may well be the safest bet.”

Read more by James Montier in Mind Matters.

Comment

Montier is talking about 20%-40% cash.

He also recommends purchasing value stocks with good dividend yields, rather than growth stocks, since he thinks valuations of US stocks – while off from their bubble peaks – are still far too optimistic.

As the piece indicates, Montier is no fan of the “decoupling” thesis – the idea that global growth can continue despite a recession in the US. He asks how it is that the same people who once talked most enthusiastically about globalisation are now endorsing decoupling – just as enthusiastically. He calls it cognitive dissonance.
He has a point.

On the other hand, I happen to be a fan of cognitive dissonance. Mainly because our cognitions aren’t as pure and simple as we think they are. They are just points of view.

To assert both globalisation and decoupling at the same time strikes me as quite plausible. Certain aspects of trade are global. Others are not. Some countries depend more heavily on the US consumer – either directly or indirectly. Others do not. It makes perfect sense that US stocks should be overvalued and not likely to go anywhere for years……and that emerging markets stocks, even if relatively overvalued and due for a correction, should do better – even much better – over the long-term.

But the piece is still worth studying for those investors in whom hope for their favorite growth stock springs eternal….

Empire of deadbeats: have title, keep house….

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Feb. 22 (Bloomberg) — Joe Lents hasn’t made a payment on his $1.5 million mortgage since 2002.

That’s when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents’s mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

“If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company….”

More at Bloomberg.com

Comment:

Note the following:

The borrower was once the CEO of a company.

Note that his loan was for over a million.

Note that he didn’t make one solitary payment on it.

Does that sound like an impoverished, innocent, hornswoggled victim in need of charity to bail him out?

Sounds more like a speculator who never intended to make good on the loan…..

Torture files: CIA on those non-existent UK torture flights post-9-11…..oops..

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“LONDON – CIA Director Michael Hayden acknowledged Thursday that two rendition flights carrying terrorism suspects refueled on British territory, despite repeated U.S. assurances that none of the secret flights since the Sept. 11 attacks had used British airspace or soil.

Hayden told agency employees that information previously provided to the British “turned out to be wrong.”

The spy agency reviewed rendition records late last year and discovered that in 2002 the CIA had in fact refueled two separate planes, each carrying a terrorism suspect, on Diego Garcia, a British island territory in the Indian Ocean….”

“Turned out to be wrong”? This is a news story? Or a PR release from the Agency?

And turns out Diego Garcia in the Indian Ocean may after all have been used as a torture site.

We said it back in November 2005 in our book, “The Language of Empire, Abu Ghraib and the American Media” (Monthly Review Press). but it bears saying again: we are living in the early beginnings of a global police state run for financiers and bankers.

 

Econ-job: US food prices to rise sharply…just as more mortgage payments shoot up…(revised)

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According to the Financial Times,

“When William Lapp, of US-based consultancy Advanced Economic Solutions, took the podium at the annual US Department of Agriculture conference, the sentiment was already bullish for agricultural commodities boosted by demand from the biofuels industry and emerging countries.

He added a twist – that rising agricultural raw material prices would translate this year into sharply higher food inflation.

Comment:

Read further down in the Financial Times piece and you will note that the IMF, on the other hand, appears not to believe that the developing world will decouple from the US. If there is no decoupling, it says, then a US recession will cause global growth to slow and push down food prices.

The question boils down to whether you believe what an interventionist economist at the IMF says or what the market (the commodity market) says….

For one answer, read Bill Engdahl’s piece on the financial tsunami coming our way and how complex, Nobel prize-winning economic theories and models are the problem behind, not the solution to, the present crisis.

Why?

Because they are houses built on the sand of specious notions. Notions of a perfectly rational “economic man” and of a perfectly Gaussian “efficient market.”

“As hundreds of thousands of Americans over the coming months find their monthly mortgage payments dramatically reset according to their Adjustable Rate Mortgage terms, another $690 billion in home mortgage debt will become prime candidates for default. That in turn will lead to a snowball effect in terms of job losses, credit card defaults and another wave of securitization crisis in the huge market for securitized credit card debt. The remarkable thing about this crisis is that so much of the sinews of the entire American financial system were tied in to it. There has never been a crisis of this magnitude in American history.

At the end of February the Financial Times of London revealed that US banks had “quietly” borrowed $50 billion in funds from a special new Fed credit facility to ease their cash crisis. Losses at all the major banks from Citigroup to J.P.Morgan Chase to most other major US bank groups continued to mount as the economy sank deeper into a recession that clearly would turn in coming months into a genuine depression. No Presidential candidate had dared utter a serious word about their proposals to deal with what was becoming the greatest financial and economic meltdown in American history.”

More by Bill Engdahl at Oilgeopolitics.net.

Update:

I might have been a bit naive in the piece above. I was rightly curious about the IMF economist’s motives in telling us that food prices would go down in the future, when the grocery shelves say the opposite.

But I was a bit trusting about the first quote.

So here’s a bit of belated digging.

Who is Bill Lapp and this consultancy Advanced Economic Solutions?

Lapp is a former VP of research at Con-Agra. A little googling reveals that just in 2007, ConAgra settled with the SEC over various financial improprieties.

He also seems to show up at Harvard run bashes for agribusinesses, says Hal Hamilton of the Sustainability Institute. And seems to like cheering on Monsanto’s attempts to shove biotech down the mouths of unwilling Europeans as Adam Smith in action….a curiously fundamentalist interpretation of The Wealth of Nations that, as Hamilton points out, would probably have left old Adam speechless.

The website of the Kansas City Board of Agriculture had this:

“Lapp, who has been appointed to his first two-year term, has more than 25 years of experience in analyzing and forecasting economic conditions and commodity markets. He recently formed Advanced Economic Solutions, which provides economic and commodity analysis to agri-business and food companies. Prior to that, he was the vice president of economic research for ConAgra Foods. Lapp currently serves on numerous boards, including the Kansas City Federal Reserve Board’s Center for the Study of Rural America, the Farm Foundation, and the Food and Agriculture Committee of the Omaha Chamber of Commerce. Lapp is a member of USDA National Agricultural Statistics Service Advisory Board and participates on the Harvard Business Industrial Economists’ Round-Table.”

And here we find Bill Lapp saying about what he said up above....only he’s saying it in s 2004.

Since 2002, the value of the dollar has dropped 25% while commodity costs have risen 46%. In fact, according to the CRB Index, commodity costs earlier this year were at their highest level since 1984.

The result was that in the year between April 2003 and April 2004, soymeal prices rose 92%, cheese 90%, soy oil 54% and chicken breast meat 47%, just a few of the more dramatic price jumps.

The good news? April seems to have been the peak for this escalation. Since then, many (though not all) commodities— especially grains and dairy products,but not proteins—have seen price declines, some quite sharp. This is due, Lapp indicated, to a stabilization of the dollar and a slowdown in the Chinese economy. Over this period, cheese prices have fallen 33%, corn 24% and soymeal 23%. However, protein prices remained high through mid-June thanks to continued high demand driven by the low-carb diet fad, along with constrained domestic supplies and a ban on Canadian beef imports.

What about the future? If that could be predicted with certainty, there would be no futures market in commodities. However, the best guess, according to Lapp, is that moderation in price will continue through the end of the year, perhaps extending even to protein after Labor Day and the end of the peak summer season. A continued economic lull in China would also reduce demand from that market, lessening pressure on global supplies.”

Here is Lapp in December on the rate of inflation in US food prices over the next five years:

“During the next five years, food inflation is forecast to increase by an average of 7.5 percent, well above the 2.3 percent average of the past 10 years.

“The US experienced a similar period of rising commodity prices and food inflation in the 1970s. Commodity prices doubled … this ultimately resulted in food inflation from 1972 to 1981 averaging 8.2 percent,” the study said.

Traditionally, the food industry — processors, grocery stores, restaurants, and others — absorbed the cost of higher commodity prices within its operating margins as the rise was temporary given the competitiveness of retailers.

But times are changing, said Lapp, who is a consultant to the food and agricultural industries….”

And here’s Lapp in this piece telling the consumer that he can – and should – pay higher prices.

“Lapp, the former leading economist for ConAgra, told Brownfield bread prices rose over 10% in 2007 and are likely to do at least that again this year. He added other food prices will also head higher as food manufacturers increasingly pass on the costs of high commodities to consumers. The good news, Lapp said, is that most U.S. consumers can afford to pay up, even if they won’t have much choice in the matter.

“I think consumers are more prepared than we realize to accept higher prices on food and I think that’s part of our future,” Lapp predicted. “It’s largely been set in stone for us already.”