America’s Infrastructure

The Economist has an article about the current infrastructure in America. The article contains some of the same figures which Sellers Capital use in their VMC investment thesis.

A few excerpts from the article:

In 2005 the American Society of Civil Engineers estimated that $1.6 trillion was needed over five years to bring just the existing infrastructure into good repair. This does not account for future needs.

The private sector is hungry to invest. In May Morgan Stanley raised $4 billion for its new infrastructure fund.

In January a national commission on transport policy recommended that the government should invest at least $225 billion each year for the next 50 years.

The article also outlines the underfunding of water infrastructure. Which is one the reasons behind Whitney Tilson picking MWA in July 2007, as mentioned in Kiplinger.

America’s ageing water infrastructure is sorely underfunded: the Environmental Protection Agency forecasts an $11 billion annual gap in meeting costs over the next 20 years.

Macquarie Group

The Economist has an article about Macquarie Group, talking about their business model and if they can continue their sucess.

Here is a good quote about how they manage their staff:

For some, this optimism is based on an aspect of the Macquarie model that is hard to pin down: its people. Much of Mr Moss’s (current CEO) 30-year experience has been on the trading floor, which has taught him to be adventurous—within limits. The trick, he says, is to encourage employees to come up with fresh ideas, back them if they are good, and award big bonuses if they are successful, and, importantly, contain losses.

Economist Links

Two links from this week’s Economist:

• Free audio guides for business travellers to major cities.
• An article about stickK – a website that aims to help people making seemingly irrational (well according to economists) decisions, like smoking, not exercising etc.

Global Gender Gap Index 2007

Women in New Zealand are 5th closest to enjoying equality with men,  according to the “Global Gender Gap Index 2007” published by the World Economic Forum. New Zealand came 5th out of 128 countries.

Customer Feeback

The Economist has a good example of customer feedback in this article Past rites – How companies can benefit from looking backwards as well as forwards. It talks about how companies are becoming more interested in their corporate history and how they communicate this to customers, employees etc.

It mentions the fruit smoothie company, Innocent (quote from their website: make lovely natural fruit drinks like pure fruit smoothies and fresh yoghurt thickies).

Innocent sold an initial batch of smoothies from a market stall in London. They asked customers to put their empty bottles into one of two labelled bins to indicate whether they should focus on their new venture or stick to their day jobs.

Just thought this was a great example of getting customer feedback, and giving the customer a sense of involvement in the company.

Plain Talking

In scanning through this week’s The Economist I came across this article about the recent volatility in the financial markets, which included this quote:

If someone has staked all his wealth on a leveraged fixed-income hedge fund, then he is too stupid to deserve to be rich.

Free Exchange

I am constantly impressed by the quality of posts on The Economist‘s blog Free Exchange.

There was this post about Efficient Market Hypothsis which was good, without even considering the excellent comments.

• Weak: you can’t beat the market by trading on historical prices.  Almost everyone believes this except that guy you see on Saturday morning financial shows.  If he was making money doing this, he wouldn’t need to be seeking publicity on a Saturday morning financial show.
• Semi-strong: you can’t beat the market by trading on public information, because by the time you know about it, so does the guy you’re trying to trade with.  This is not quite true, but beating the market this way is now essentially an engineering problem, rather than an economic issue.  If you can make your computer fast enough to push through a trade before the other guy’s computer has reacted to the new information, you can make money.  But it is hard to do, and requires not just technical genius but also an expensive up-front capital investment
• Strong: All public and non-public information is incorporated into the stock price.  I don’t believe this is true.  But I believe it is sort of true, thanks to insider trading.  Stocks show considerable evidence of movement on things like proposed mergers, and bad earnings, after those things are known inside the company, but before they are announced.  But the fact that it is possible to make money insider trading, as it seems to have been, dictates against the strongest version of this.

And this post about a recent news items that states:

If your friends and family get fat, chances are you will too, researchers report in a startling new study that suggests obesity is ‘socially contagious’ and can spread easily from person to person.

The Free Exchange blog then follows with an excellent post that gives an addional insight via standard economic theory.

If something, such as your friends getting fat, reduces a cost of obesity then it well may cause you to become obese.  But if you are rational and now switch to being obese you must be better off than before.  So your friends’ weight gain has made you happier.

Suppose you must decide whether to do X.  (X could represent choosing to eat a lot.)  Initially you reject X .  But then a cost of doing X goes down.  If you still don’t do X you are made no worse off by the cost reduction.  If, however, you switch to X you must now be better off than before (or else you would not have switched) so whatever has reduced the cost of X has increased your happiness.

Playing In The Currency Markets With A Peashooter

Here are some links about the RBNZ’s intervention in the currency markets. I especially like the comparison of RBNZ’s efforts and that of a peashooter made by The Economist.

Economist – A warning shot

CONFRONTED by a growing army of speculators, on June 11th the Reserve Bank of New Zealand decided enough was enough—and let rip with the peashooter.

 

Most nations with strong currencies should refrain from following its lead. After all, peashooters are of little use against a determined foe.

But The Lex Column (subscription required) in the Financial Times makes the point that currency intervention is meant to work in one of three ways.

1. Directly affecting the supply and demand of the currency.
2. Hinting at future monetary policy.
3. Signaling that the currency is out of whack.

The column rightly points out that only the last two have any real chance of working. If the RBNZ is determined to defend the currency at a specific level then there are “players” in the foreign exchange market with far deeper pocket than the RBNZ. But this YahooXtra article states the RBNZ will not attempt to defend a particular level for the kiwi.

If the “exchange rate is exceptional and unjustified in terms of the economic fundamentals” to borrow the words of Allan Bollard then as the Lex Column says, it may turn out to be a good punt by the RBNZ.

Other coverage:

• Article about the first intervention from the Financial Times: New Zealand raises spectre of intervention.
• Bloomberg article about the second intervention.

Above the fold – Economist

Quick note about the increase in New Zealand’s interest rate from The Economist’s blog free exchange.

The Reserve Bank of New Zealand on Thursday raised interest rates for the third time since March. The central bank based the increase to 8% on inflationary pressures due to housing demand, consumer spending and increased world prices of dairy products. The New Zealand dollar rose to 75.67 US cents, the highest since March 1985, and further attracting investors.