Tuesday, 14 December 2010

Survival of the smartest

John Mangun
Outside the Box
Business Mirror

There are some people who are (and there is no nice way to put this) cheap. Not thrifty but cheap as in cheapo, miserly, tight-fisted, and stingy. I am one of those types of people.

I would rather buy three pairs of cheap shoes than one pair of high- quality footwear. When it comes to spending money on me, I look for almost anyway to avoid paying full price even if it means buying a used or even an inferior product. Not all the time and not for everything, but often enough so that I can proudly wear the label of being “cheap.”

One time I bought a computer table at half-price. My six-year-old son immediately pointed out that there was no shelf for the keyboard. I told him to hold the keyboard on his legs and pretend it was a laptop. He refused and that computer table now holds a small used television that I bought.

I have always objected to going to the National Book Store and paying P400 or P500 for a new best-selling book. I am the one you see at the discount bookstores around town buying paperbacks for P50 or less. You know the books I mean; no cover or if there is a cover, inside you will find something written like “Happy Birthday” and the date June 4, 1992.

So I walked into National Book Store over the weekend and saw a table filled with hard-cover books with a sign reading “Sale: P99.” Here were hundreds of books, some still on the US best-seller lists for P99! They looked brand new. How could we in the Philippines be buying these books, most costing $25 or more for P99?

Every one of these books had come from a public library. Some still had the microchip attached inside to keep people from stealing them from their hometown library.

I had read some time ago that state and locally funded public libraries in the US were closing because they just did not have the money to stay open. And because there was no money to even store the books, these were being sold at a huge discount to get rid of them. And they eventually wind up in countries like the Philippines at a price cheaper than what it costs to produce a locally printed book.

The reason for this story is to illustrate how times have, are, and will continue to change. This is not your father’s or grandfather’s global economy. It is not even the global economy that we knew just a decade ago.

The problem with too many people is that they are slow to adjust their thinking to changing times and conditions.

For decades, the Philippine export industry has cautioned and complained about a strong peso potentially hurting their business. And they were right. But this is 2010 and the situation has changed. That “strong peso” argument is just not as valid as it used to be. Through 2010, the exporters complained and worried about the peso. And guess what. From BusinessMirror: “Neda Director General and Socioeconomic Planning Secretary Dr. Cayetano W. Paderanga Jr. said that with October export earnings growing by 26.4 percent to $4.74 billion, the January-October export earnings have posted a growth of 37.1 percent or $43 billion. With a growth of 26.4 percent, the Philippines posted the highest export growth in Southeast Asia in October 2010.” Here is the most important point that most local newspapers did not understand or highlight.

The same factors that pushed the peso higher (a declining dollar), also increased the price of our exported goods offsetting losses from a stronger peso. Growth of the volume of exports is strong but the growth of the revenue from exports is stronger.

Look at US economic policy. The Federal Reserve lowers interest rates to almost zero. The traditional idea is that this would allow US banks to borrow from the Fed at a very low rate and loan those funds to boost economic activity. But this is 2010 and things have changed. Why would US banks loan money to US businesses that are not doing very well in the economy and that are not very interested in borrowing money? So what do the banks do? They borrow the money from the Fed and ship it overseas to buy Philippine government debt and loan to Filipino companies at a higher rate than they can get in the US, and they are loaning to borrowers that are more stable and secure.

But the Fed still thinks its 1982 when the last recession ended.

Another good example of changing scenarios is China. The economic wonder child of the 20th century is ready to implode and few are acknowledging that fact. While certain Philippine government policymakers would like this country to become an economic satellite of China, the Chinese economic miracle is fading fast. From Forbes: “China’s consumer price index jumped 5.1% in November. The year-on-year increase was the biggest in 28 months.” But that is not the worst news. From CNBC: “Construction is 60-plus percent of GDP, compared to exports of 5 percent,” said James Chanos, who is the founder and president of Kynikos Associates. China has built new cities that are now essentially empty. When construction is 60 percent of your economy, and you are building lots of things that people don’t need, it’s hard to manage this type of bubble.”

Already the smart money is looking at countries that depend on China to buy their exports and avoiding those countries. Do we really want China to be our largest trading partner?

Charles Darwin wrote, “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change.” A nation’s survival and prosperity depend on effective actions that are creative and adaptive. Being able to properly and effectively adjust to the world depends on an accurate evaluation of the changes going around us.

E-mail comments to mangun@gmail.com. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

No comments:

Post a Comment