Manufacturing jobs for the UK

Heard on BBC Radio on Saturday from Nick Baird (see below) that Indian industrialists – between Tata-Corus Steel, Arcelor Mittal, Land Rover, Jaguar, Tetley Tea and ICI – are the biggest employers in UK manufacturing sector.  He was interviewed while at the Global Investment Conference which the British Government had intelligently organised along with the Olympics – the same conference in which Mr. Draghi, the President of the European Central Bank made a ‘rousing’ speech. TGS had blogged on it here.

So, India and Indians had a big role to play in their wealth generation and now are providing for its preservation, or whatever is left of it.


UK Trade & Investment (UKTI) is the joint department run by the Foreign & Commonwealth Office (FCO) and the Department for Business Innovation & Skills. It has a lead role within government for developing trade overseas and inward investment in the UK. It includes the UKTI Defence & Security Organisation

Chief Executive: Nick Baird;  Deputy Chief Executive: Susan Haird

So, can we call it the Baird & Haird show?


Fed (Quickfix) QE

This is what Goldman Sachs Research wrote on the Durable Goods Orders data for June in the US:

Probably the best summary number for recent private-sector manufacturing activity is the three-month annualized rate of core capital goods orders, which currently is running at a sorry -3.1%.

Elsewhere in the durable goods report, shipments rose only 0.1% and inventories 0.3%. Our tracking estimate of Q2 real GDP growth is unchanged at 1.1% following this report.

HSBC Research weighed in too:

BOTTOM LINE: Orders of capital goods are roughly unchanged since late last year. Growth in business investment has waned. Shipments and production are likely to slow in the months ahead unless demand picks up soon.

I have not provided web links because these were delivered to my IN-BOX as emails.

Thanks to HSBC report, I was alerted to the fact that three newspapers – The Wall Street Journal, Financial Times and the New York Times – have carried stories on the Federal Reserve contemplating asset purchases, viz., Mortgage Backed Securities (MBS). The Federal Reserve Open Market Committee meets on July 31 – August 1.

Whether purchases of MBS pushes down mortgage rates or not (I guess they do, invariably), the questions are whether that is the solution to the problem of mortgages under water or people with no jobs or income. Remember the article in Mother Jones on temporary employment?

In his latest weekly missive, John Hussman poses the valid question:

The more troubling issue is that Fed papers on the effectiveness of QE focus almost singularly on the effect of QE on interest rates and risk premiums in the financial markets, with the notable absence of any analysis of the resulting effect on the real economy. This is like showing that squirting gas into an engine will make the engine run faster, without any concern for the fact that there is no transmission that connects the engine to the wheels. In a nutshell, the problem with QE is the lack of any material transmission mechanism from monetary interventions to real economic activity. This is a problem that the Fed should have recognized years ago, because there is strong and consistent historical evidence that real economic activity has very weak “elasticity” with respect to financial market fluctuations, particularly in equity values.

Of course, the easy counter-argument is that this time around the Federal Reserve is contemplating the purchase of MBS and not trying to boost stock prices.

The Ritholtz blog has this story on the recent ‘recovery’ in US housing market. The report referred to therein is available only at a price of USD100.00.

A key sentence from the post:

Hanson notes there is no real difference between the YoY “resetting” of rates lower and introducing increased leverage to keep people paying “more” for houses, despite the same income and monthly payment.

With drought (USDA drought monitor as of July 24th 2012) threatening agricultural crops and likely to add moderately to food price inflation in the US and with employers adding more part-time workers than full-time workers, it is unclear if a monetary quickfix would work and is all that America needs now. Perhaps, recovery from such huge pile-up in private sector and public sector debt needs a lot longer than our impatience allows for. In the process, we risk doing serious damage with our fixes.

Great weekend reads

‘Every one wants temps’ [Link]. Gives a lot of perspective on issues that we think we face in our comfortable lives.

The next two articles, in my view, are more of ‘public policy’ matters.

‘Thousand in illegal squalor near Olympics’ [Link]

From ‘Occupy London Tour Shows Bankers Profiting Amid Poverty’ in Bloomberg,

Income inequality among working-age people has risen faster in the U.K. than in any other wealthy Western country since 1975, according to the Paris-based Organization for Economic Cooperation & Development. London and the finance industry are the driving forces behind the rise, according to Mark Stewart, an economics professor at the University of Warwick.

“The greatest evil is not now done in those sordid dens of crime that Dickens loved to paint,” he says, reading from notes. “It is conceived and ordered in clean, carpeted, warmed and well-lighted offices by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices.” [Full article here]

How could I have missed this? The weekend reading would not be complete without a reading of ‘Global warming’s terrifying new math’ in Rolling Stone.

Extraordinary – sequel

I should have added the speech by the Governor of the Reserve Bank of Australia to the list of ‘Extraordinary’ things that I commented upon recently. But, I have decided to reserve it for my MINT column on Tuesday (July 31st). In the meantime, if you want to get a ‘preview’ of the column, you can check out the Governor’s speech here. It has got some good charts too.

What Mario Draghi said on Thursday does not come anywhere close. It was a sound byte. Why the market should send the EUR higher beats me. If he meant to walk his talk, he would print massive quantities of Euro under various acronyms masquerading as economic stimulus. You can check out the helpful suggestions given him by the IMF in paragraph no. 23 here. That should weaken and not strengthen the Euro. Strange.

Of course, to the extent that Europe is willing to end the ‘financial fragmentation’ that he talked about, it has to get a lot closer to a political union than any of the nations are willing to contemplate now. That is my guess. But, he added pointedly that

When people talk about the fragility of the euro and the increasing fragility of the euro, and perhaps the crisis of the euro, very often non-euro area member states or leaders, underestimate the amount of political capital that is being invested in the euro.

All I can say is that it all augurs rather well for Gold and for a global stagflation scenario in 2013 which is my personal base-case scenario for next year. Of course, it has started to unfold already.


The certitude with which Mr. Ambrose Evans-Pritchard makes predictions of outcomes of unproven and untried monetary policy measures is most extraordinary. There are things one has to be thankful for – in this world, still – it seems. Mr. Evans-Pritchard is only a journalist and not a policymaker. Thank God for that.

Market monetarists around the world argue that central banks can always fight off slumps, whatever is thrown at them. But to do so policy-makers must stop targeting inflation — the wrong variable, indeed a particularly bad variable — and instead deploy nuclear force to drive up nominal GDP to a trend line growth rate of 5pc, doing so transparently so that markets know exactly what the objective is and when the stimulus will be unwound.

I have no doubt that this would bring about a full recovery very fast if conducted with enough panache, but is it possible to marshal political consent for such revolutionary action?

The Tea Party Congress, like Europe’s bourgeousie, would rather wallow in liquidation, Puritan cleansing, and mass default than tolerate the possibility of a solution.

To those who excoriate monetary stimulus as some form of devilry — most readers it seems — my question is whether would you rather see bigger deficits and bigger publics debts instead. Because that is exactly what you get if central banks fail to act in a slump, if you don’t lose you democracy as well.

Pick your poison. [Link]

Equally extraordinary are the twists that weather gods have chosen to add to the global economics drama. Even as the USA suffers from ‘once in a generation’ drought, parts of Europe are experiencing heat-wave conditions and Indian monsoon season is close to being declared a failure.

Gillian Tett in her column in FT yesterday cites Robert Barro on the fact that the world had 58 disasters in the 20th century. Professor Barro defined a disaster as the drop in GDP per capita of 10% or more. Just two of them happened in the second half of the twentieth century. [Link – may be behind a subscription firewall]

in the first decade of the 21st century, the population of the world produced more economic output than in the first 19 centuries of the common era combined. [See this and this]

Put these – the absence of economic disasters for five decades and the frenzied rise in output in the last 10 years or 60 years – together and you get a picture of why we have become extraordinarily confident and complacent. We are still not accepting that we simply got lucky or that we have stretched ourselves too much.

We are being pulled back to normal, whether we like it or not. That is one of the reasons I found Mr. Ambrose Evans-Pritchard’s claims outrageous, not to mention the economic ignorance that is plastered all over it.

‘Just do it’ and other links

The students in my central bank seminar at PKU tell me that there are new rumors about the way the cuts were implemented. “Usually it is the PBoC that submits a proposal of rates cut to the State Council,” one of them wrote me recently, “but this time (July 5th) it was the State Council who handed down to the PBoC the decision to cut rates, so that the PBoC was not fully aware of the rates cut before July 5th.” [From Michael Pettis’ newsletter extracted here].

So, the Communist Party of China told the People’s Bank of China to go and just do it.

If ‘John Mauldin’ were a stock, one would have made truckloads of money being long on that stock, since ‘it’ is high-flying  in both bull and bear markets. I have been ‘guilty’ of not reading his emails although they do land up in my IN-BOX. I caught up with some of them and I recommend two of them. One of them captures and summarizes the problems in the Eurozone well and the other shows how unusual the bull and bearish trends in the S&P 500 have been since the start of the Millennium.

The surge in American corporate profits and its origins is nicely documented in this guest-post over at Zerohedge in a few charts. So much for private sector dynamism.

Few ‘words of wisdom’ from the late Barton Biggs taken from this post at

“[T]he investment process is only half the battle. The other weighty component is struggling with yourself, and immunizing yourself from the psychological effects of the swings of markets, careerrisk, the pressure of benchmarks, competition, and the loneliness of the long distance runner.”

* “I’ve come to believe a personal investment diary is a step in the right direction in coping with these pressures, in getting to know yourself and improving your investment behavior.”

* “As I reflect on this crisis period so stuffed with opportunity but also so full of pain and terror, I am struck with how hard it is to be an investor and a fiduciary.”

* “The history of the world is one of progress, and as a congenital optimist, I believe in equities. Fundamentally, in the long run, you want to be an owner, not a lender. However, you always have to bear in mind that this time truly may be different as Reinhart and Rogoff so eloquently preach. Remember the 1930s, Japan in the late 1990s, and then, of course, as Rogoff said once with a sly smile, there is that period of human history known as ‘The Dark Ages and it lasted three hundred years.’”



Kahneman and UK margins

On going through the ‘Agents’ summary of business conditions’ in the UK (July 2012), I could not marvel at the relevance of insights,I am slowly imbibing from an equally slow reading of ‘Thinking fast and slow’ by Professor Daniel Kahneman, for the survey on profit margins (page 5). The Agents’ summary is here.

Farm truths from JNU

Received from a friend an article published in MINT titled, ‘The perils of retail therapy in India’. The article gives the impression of being rigorous with its references to the empirical experience in the United States on farmers’ incomes arising from the rise of retail chains, etc. It quotes statistics too. But, the article is flawed on several counts:

(a) Experience of United States is not transferable to India. Economic policies must be rooted in one’s own context, culture and experience.
(b) The aims of liberalised wholesale and retail trade are not just farm prices. Government MSPs are doing that job, more than adequately. If retail chains do not offer good prices, farmers can always dump them on the benevolent GoI.
(c) It is not clear if farmers in the US were exploited by middle-men and mandis. If not, then it is no loss to them if retail chains did not compensate them.
(d) Share of farm income (the article is not talking about absolute dollars) may drop if the value generated in the entire retail chain rises such that the share of  value-added going to farmers drops. Moreover, if farmers’ prices received drop, it could also be due to their improved productivity. In that case, the right metric to look at is their net income and not a vague percentage share.
(e) If farmers are not made worse off but if end-consumers are better off, then it is still better than status quo
(f) Even if farmers become worse off but end-consumers become better off and if the latter trumps the former, the Government should find a way to share the enhanced welfare gains with the former (i.e., farmer)
(g) If protests against Walmart take place in the US, then it is because Walmart has diverted procurement to developing countries. That is a plus for us. Hence, protests in the US are not necessarily a warning signal for India’s interests.
(h) There is no reason to assume that the Government of India policy is only about giving license to one entity, Walmart.
(i) It is important to find out how much kirana shops rob the government of revenues. A reasonable hunch is that they trade only in cash. They possibly evade Income and Sales Tax. They do not pay for the electricity they consume. These are unlikely to happen in the case of retail chains. That benefit has to be factored in, given India’s budget deficits.
(j) My guess is that Indian  shoppers are unlikely to abandon kirana shops and migrate the whole hog to retail chains. If, in fact, they do, then that shows how much they have been fleeced by the existing kirana shops.Pl. check back with points (e) and (f) above.
(k) The Central legislation on FDI in retail is only an enabling legislation. States are in the lead. Those states that are open and keen can do so.

(l) FDI in retail can be done on a pilot basis in willing States. Based on lessons learnt, it can be either confidently advanced or persuasively argued against. The best place to test policy decisions is the real economy and not the Op.-Ed pages of newspapers or bully pulpits.

(m) The pursuit of necessary reforms in agriculture – really creating a single market in India for agricultural produce – is not a EITHER/OR thing with FDI in retail. The GoI can and should do both.
Postscript: For a country with a current account deficit of around 4%, foreign capital is a MUST. It is neither an option nor a luxury. Better if it is equity than loans. Government of India recent foreign capital liberalisation measures have all been in the direction of welcoming more portfolio capital and that too, debt. Both are bad.
Even if some one were to disregard the list of points I had raised above totally, the sheer signalling effect of the implementation of FDI in retail could be substantial  in terms of restoring faith among investors, entrepreneurs and industrialists in the Indian economy, in the Indian government and thus bring back economic growth.
As to why economic growth matters  – contrary to all that we have heard from the members of the National Advisory Council of the Government of India – read what Dr. Pratap Bhanu Mehta had written (ht: Nandakumar) in ‘Indian Express’ recently.

US drought

First time in 24 years; warmest 12 months on record in the US; Worst in a generation drought, etc. [Link]

About 55 percent of the continental United States is now designated as in moderate drought or worse, the largest percentage since December 1956, according to the National Climatic Data Center, and the outlook is grim. [Link]

The farm economy is relatively small in the US. But, its multiplier effect may not be that small.

P.S: When I wrote my piece for MINT on Sunday (and published on Tuesday), I was not aware that US retail sales would be down for the third month in a row.

Well said

  • A Nobel Prize in economics is not an indicator of public speaking ability
  • those who know the least talk the most, and this applies to economic debate in the Australian media more generally
  • the good guys are completely outnumbered by the vested interests
  • there is an absolute lack of disclosure about financial interests of people offering economic policy advise and contributing, “as experts”, to the public policy debate
  • The standards of statistical understanding vary enormously
  • No one knows what money is or where it comes from
  • Representatives of our public institutions are good at talking without saying anything of value
  • Ideology rules the day [Link]

Only one small clarification from my side: The above are not just the bane of Australian economic analysis. has another blog post on my pet peeve – separating finance from real economics. Put differently, how to prevent the ‘financial sector’ tail from wagging the ‘real economy’ dog. I had alluded to that even in my latest MINT column on the US economy. The need for a moral and ethical comeback is more acutely felt in the financial sector – especially in the developed world. Pleased to see Bloomberg Editorial writers articulate it rather boldly:

If history is a guide, banks won’t do this voluntarily. It’s up to regulators to crack down. Criminal prosecutions would also go a long way toward deterring people from breaking laws in search of bigger profits and fatter bonuses. Shareholders, too, should demand change; they ultimately pay the cost for risky behavior that results in stiff penalties or a bank’s collapse.

No one can demand morality. But lawmakers and regulators can stop enabling bad behavior. Putting in place (or not blocking) the rules required by Dodd-Frank, including the Volcker rule, to prevent self-dealing and abuse of taxpayer money will go a long way toward redirecting Wall Street’s moral compass.