From today, I am going to write a series of blog posts regarding the current state of Europe. Unlike what most people consider, Europe is in a much worse shape than what people normally imagine. Current economic hardship could be attributed to many different sets of factors, but it could be boiled down into two major forces: institutional failure and long-term macroeconomic forces. Further breaking it down, institutional failure comes from both fundamental flaws of the entire European monetary system and from weak corporate governance system. With regard to macroeconomic forces, I want to go beyond the traditional variables and extend this discussion to include cultural, social and demographic forces as well. All of these forces, in conjunction, led to today’s demise and will further undermine Europe’s competitiveness if not dealt adequately.
Today is an overview, in response to the latest stress test results.
Market responses after the release of the stress tests reveal that the banks’ instability across the European countries was not that severe enough to justify shortening credit among banks. In fact, the very notion of this stress test from the first was abating concerns over liquidity problems by enhancing credibility of the banks. Apparently, they seemed to have succeeded in this goal, but it appears not to be successful when we take into account of the fundamental problems.
Unfortunately, history does not provide any examples of this current “unique” situation; centralized monetary and fiscal policy unit, undertaking subsets of different political government roles at the same time. For the past decade, this new experiment has run successfully with no obvious issues protruding. Conspicuous problems have been concealed and dominated by incredible growth stories of Southern European regions. At that time, combined European system was commended by everybody. But, as the financial crisis unfolded, growth factors that led these countries success are now subject to closer inspection. In fact, growth did not derive from any fundamental ingredients in these regions; it was stimulated by invisible Keynesian forces, what I would call it. Essentially, artificially low interest rates made them to take on debts of the level that they would never able to service in the future, thus leveraging up their whole economies and derailing from natural rates. Now, it is very obvious for them to depreciate their currencies, but that option is not available under this current system. And to make this situation even worse, European countries are going under austerity programs by cutting fiscal expansions, which will in turn accelerate already existing deflationary pressures. How will these Southern neighbors be able to find growth and stop moving further from the track?
The answers so far provided are politically unreachable and economically incompatible; political in a sense that it is highly related with each nation’s job market and citizens’ sentiments, and incompatible in a sense that the stated austerity scheme and stabilizing the liquidity issue cannot be addressed concurrently.
2010년 7월 29일 목요일
2010년 6월 24일 목요일
Private equity firms eying on small regional banks
While many small banks are nearly going underwater and having a hard time acquiring liquidity, on the other side of the spectrum, there are some entities raring to go after regional banks, whose assets are not clean: Private equities.
I see this in two ways.
First, this once again illustrates the importance of market mechanism. Without these movements taken from the private sector, troubled banks will have a hard to time to get out of this mess just solely depending on bailouts or expecting sudden recovery. Second, considering the very nature of banking industry, it is very prone to contagion risks. So, the chance is that when one bank is suffering, it is very likely that the other bank nearby is undergoing difficulty as well. That being said, the deals reported in the article implicitly indicate that many firms are sanguine about the future of these banks; this also implies their views about the possibility of recovery in the overall capital markets and credit markets.
But again, if we see the fundamental situation, maybe they are willing to take a little bit longer investment horizon for these investments.
I see this in two ways.
First, this once again illustrates the importance of market mechanism. Without these movements taken from the private sector, troubled banks will have a hard to time to get out of this mess just solely depending on bailouts or expecting sudden recovery. Second, considering the very nature of banking industry, it is very prone to contagion risks. So, the chance is that when one bank is suffering, it is very likely that the other bank nearby is undergoing difficulty as well. That being said, the deals reported in the article implicitly indicate that many firms are sanguine about the future of these banks; this also implies their views about the possibility of recovery in the overall capital markets and credit markets.
But again, if we see the fundamental situation, maybe they are willing to take a little bit longer investment horizon for these investments.
2010년 5월 21일 금요일
US, the next Greece?
I found a great article analyzing today’s state of the economy of the US. Paul tried to provide a comparison between the US and Japan, and that today’s fears should be more focused on trying to fight against deflation, and not inflation.
Paul has been consistently arguing for more expansion of government spending since the crisis. Not only Paul, but also Barton Biggs maintained that, historically no central banks demonstrated any good measures to counter deflationary pressures; essentially, there are bigger risks from less stimulus packages, according to his account.
At first, it was quite confusing for me why there were both inflationary and deflationary impulses at the same time. With these huge several trillion dollars of monetary expansion, won’t there be massive inflation coming toward us? But, if we look into the numbers, it gives us different stories. Recently, 10-year Treasury bonds’ interest rates have been declining due to lack of confidence of the stock market; stock markets serves as a good indicator of the strengths of the real economy. If people perceive corporations’ earnings will be high in the near future, why would they head for low expected returns?
The other factors he used for his arguments are high unemployment rate and excess capacity; these are all precursors of deflation.
While there are lots of fear-mongering over the huge deficits and debt programs the government is planning and pursuing, the real problem that could pervasively affect the economy could be another “lost decade” in this planet; and that could be the US.
Paul has been consistently arguing for more expansion of government spending since the crisis. Not only Paul, but also Barton Biggs maintained that, historically no central banks demonstrated any good measures to counter deflationary pressures; essentially, there are bigger risks from less stimulus packages, according to his account.
At first, it was quite confusing for me why there were both inflationary and deflationary impulses at the same time. With these huge several trillion dollars of monetary expansion, won’t there be massive inflation coming toward us? But, if we look into the numbers, it gives us different stories. Recently, 10-year Treasury bonds’ interest rates have been declining due to lack of confidence of the stock market; stock markets serves as a good indicator of the strengths of the real economy. If people perceive corporations’ earnings will be high in the near future, why would they head for low expected returns?
The other factors he used for his arguments are high unemployment rate and excess capacity; these are all precursors of deflation.
While there are lots of fear-mongering over the huge deficits and debt programs the government is planning and pursuing, the real problem that could pervasively affect the economy could be another “lost decade” in this planet; and that could be the US.
Private equities and the media industry
Lately, I have been discussing about the recent changes in the media industry and its effects on the whole industry. I came across an interview, who is involved in this industry for more than 30 years. Jonathan Nelson is the CEO of Providence Equity Partners, a premier private equity firm which has launched its first fund in 1989.
There are two peculiar points about this firm. First off, the firm is focused mainly on media and communications sector. Second, the firm neither hasn’t used nor currently uses lots of debt to fund buyout deals. In fact, Jonathan claimed that 8 out of 10 companies under his portfolio do not even have a single debt on their books. This is quite striking to me, as most of the private equity firms I have encountered so far aggressively utilized leverage for their funding. In respect of that issue, opposition to the common viewpoint, he presented a different viewpoint. He referred to some research outcomes conducted from management consulting firms, and insisted that those researches verified the fact that approximately 80% of the values came from enhancement of operations, and not from multiple expansions or amortization of debts.
As a matter of fact, he maintained that his firm’s mission objective is to grow the business with them, and the tools his firm can bring to the table are not only capital, but also expertise. If we track the investments the firm has made, we can see how much the company is focused on one sector. Although, this strategy exposes firms who are exploiting this strategy with another problem, which we call it as sector or concentration risk, it seems that this firm has managed this risk successfully thus far.
Then what are his views about the media industry today?
Well, he said that the whole media industry is in an early stage of transformation. He attributed this trend to some underlying factors that are changing the landscape fundamentally. Recently released products like Kindle, iPad, iPhone, and so on are all catalysts of these changes; iPod has nearly destroyed the music recording industry, and other devices that are newly available would make the printed newspapers disappear. He also argued that most of the online business could possibly maximize their profits by converting their business model into a combination of advertising and subscription based revenue-stream structure.
Anyway, this 35 minutes of interview has changed some of the negative views that I was holding on private equity business practices, and also provided me some fresh insights of the media industry.
There are two peculiar points about this firm. First off, the firm is focused mainly on media and communications sector. Second, the firm neither hasn’t used nor currently uses lots of debt to fund buyout deals. In fact, Jonathan claimed that 8 out of 10 companies under his portfolio do not even have a single debt on their books. This is quite striking to me, as most of the private equity firms I have encountered so far aggressively utilized leverage for their funding. In respect of that issue, opposition to the common viewpoint, he presented a different viewpoint. He referred to some research outcomes conducted from management consulting firms, and insisted that those researches verified the fact that approximately 80% of the values came from enhancement of operations, and not from multiple expansions or amortization of debts.
As a matter of fact, he maintained that his firm’s mission objective is to grow the business with them, and the tools his firm can bring to the table are not only capital, but also expertise. If we track the investments the firm has made, we can see how much the company is focused on one sector. Although, this strategy exposes firms who are exploiting this strategy with another problem, which we call it as sector or concentration risk, it seems that this firm has managed this risk successfully thus far.
Then what are his views about the media industry today?
Well, he said that the whole media industry is in an early stage of transformation. He attributed this trend to some underlying factors that are changing the landscape fundamentally. Recently released products like Kindle, iPad, iPhone, and so on are all catalysts of these changes; iPod has nearly destroyed the music recording industry, and other devices that are newly available would make the printed newspapers disappear. He also argued that most of the online business could possibly maximize their profits by converting their business model into a combination of advertising and subscription based revenue-stream structure.
Anyway, this 35 minutes of interview has changed some of the negative views that I was holding on private equity business practices, and also provided me some fresh insights of the media industry.
2010년 5월 5일 수요일
[Information Technology] Overview of the internet publishing business
When Amazon unveiled its visionary product Kindle, I was at first very suspicious whether this will change the way people basically absorb information; with the benefit of hindsight, I was very wrong. The market is ballooning every year with several new entrants entering into the market. The big players are currently Amazon and Apple. But, now the search giant Google will launch its new “Google Editions” service this summer. Disregarding the price issues, the company has several distinctive advantages compared to its entrenched rivals. First off, while the Amazon and Apple provide its contents through its proprietary platforms and devices, the contents that are offered from Google could be viewed at any devices. Second, the company has been amassing huge amount of contents through digitizing print versions; this includes scores of out-of-print books. According to a source familiar with the matter, the firm has 12 million books already in its digital shelves. The future is left in question, and we will have to see the proceedings how the competitive landscape changes.
But right now, at least I want to talk about the general trends regarding the E-books industry.
First, let’s consider some facts about E-books. It is known that Amazon has been selling 35 books out of every 100 books sold thus far. It will “gradually” replace print versions, but not completely. As television has survived through the disruptive innovation age, print books will survive the coming era due to its natural appeal. Besides, while televisions have been only existent in our human lives for a century, books have been around us for dozens of centuries.
Second, there are new businesses emerging from this breeding ground of innovation. Print-on-demand (POD) business is starting to flourish. Especially, for those who have been desiring to publish their own stories can now easily publish their own books by using LuLu or other online agencies. Those authors are called self-publishing authors.
Third, this trend has also fueled new ways to create contents. One can now incorporate audio, image, video, and other tools in the “book”. In other words, it is becoming more interactive.
Then what are the implications for the stakeholders involved in this industry?
First of all, bricks and mortar book shops are in trouble, deep trouble. Many stores are forced to be closed, as they cannot compete with the bigger ones. But, even the bigger ones, like Barns & Nobles, are finding it hard to compete with technology companies.
Second, publishers are facing problems as well. Online agencies like LuLu are replacing the traditional routes for book publishing and POD trends are eliminating the needs of hard copies.
Lastly, books and authors will be alright. Actually, for the authors, as distribution costs are shrinking, it poses a great opportunity for them to bargain for higher stakes on the overall revenue streams of selling a book.
Again, it is very hard to predict the latest market trends and how the industries will branch out into new things. Consistent observation and creative ways of thinking seems to be the only way to earn money in this industry.
But right now, at least I want to talk about the general trends regarding the E-books industry.
First, let’s consider some facts about E-books. It is known that Amazon has been selling 35 books out of every 100 books sold thus far. It will “gradually” replace print versions, but not completely. As television has survived through the disruptive innovation age, print books will survive the coming era due to its natural appeal. Besides, while televisions have been only existent in our human lives for a century, books have been around us for dozens of centuries.
Second, there are new businesses emerging from this breeding ground of innovation. Print-on-demand (POD) business is starting to flourish. Especially, for those who have been desiring to publish their own stories can now easily publish their own books by using LuLu or other online agencies. Those authors are called self-publishing authors.
Third, this trend has also fueled new ways to create contents. One can now incorporate audio, image, video, and other tools in the “book”. In other words, it is becoming more interactive.
Then what are the implications for the stakeholders involved in this industry?
First of all, bricks and mortar book shops are in trouble, deep trouble. Many stores are forced to be closed, as they cannot compete with the bigger ones. But, even the bigger ones, like Barns & Nobles, are finding it hard to compete with technology companies.
Second, publishers are facing problems as well. Online agencies like LuLu are replacing the traditional routes for book publishing and POD trends are eliminating the needs of hard copies.
Lastly, books and authors will be alright. Actually, for the authors, as distribution costs are shrinking, it poses a great opportunity for them to bargain for higher stakes on the overall revenue streams of selling a book.
Again, it is very hard to predict the latest market trends and how the industries will branch out into new things. Consistent observation and creative ways of thinking seems to be the only way to earn money in this industry.
2010년 5월 1일 토요일
[Infromation Technology] Television's survival in the midst of disruptive innovation
Unless one is really working in the industry, it is hard to track the newest trends in a timely manner. Probably, the fastest evolving industries are all related to information technology business, directly or indirectly. Economist periodically publishes a report regarding the changes in technology. As far as I can recall, the last topic was dealing about social networking websites, and its growing influence on our everyday lives. I was interested in this topic primarily because of its potential appearance in the interview scenes. How would one value Facebook? These kinds of questions are quite interesting. But, as always, you can’t really go about preparing these questions in a silo approach; you have to have at least some preliminary knowledge regarding the business. And, I have to admit that unless one is a CS major, it is really hard to conceptualize these matters, let alone getting insights.
The topic I came across just a minute ago, talks about how the giant media, television, survived in the midst of innovation age. The devices that were popular when I was a teenager disappeared quickly. However, it seems that only television has successfully maintained its status as a traditional entertainment tool. What are the secrets behind its long-lasting influence on our daily lives? This week’s Economist article pinpoints several factors.
First, TV has a “natural advantage”. It is immune from piracy threats and it functions as a social networking means. People like to talk about famous TV programs during social occasions, and if one shows ignorance in those topics, it is very likely that he will get alienated from others.
Second, in order tackle the online contents providers’ threats, TV companies have developed platforms to mitigate those risks posed toward them. TV companies have teamed up and launched a joint venture called “Hulu”. It generally provides TV shows that were shown on their channels. Their main objective is to prevail over Google’s invasion. It is not yet comparable to Youtube and other online giants, but it sure has a distinctive feature that could one day be on par with its competitors.
Third attempt is developing a subscription based provision. If one is authenticated, one can view contents in any devices he wants. The important aspect of this move is that the companies are moving from an “ad-supported” model to a mixture of advertisement and subscription model.
Alluding to the reporter’s word, TV companies “silently domesticated” the disruptive technologies. Let’s see how this battle proceeds.
The topic I came across just a minute ago, talks about how the giant media, television, survived in the midst of innovation age. The devices that were popular when I was a teenager disappeared quickly. However, it seems that only television has successfully maintained its status as a traditional entertainment tool. What are the secrets behind its long-lasting influence on our daily lives? This week’s Economist article pinpoints several factors.
First, TV has a “natural advantage”. It is immune from piracy threats and it functions as a social networking means. People like to talk about famous TV programs during social occasions, and if one shows ignorance in those topics, it is very likely that he will get alienated from others.
Second, in order tackle the online contents providers’ threats, TV companies have developed platforms to mitigate those risks posed toward them. TV companies have teamed up and launched a joint venture called “Hulu”. It generally provides TV shows that were shown on their channels. Their main objective is to prevail over Google’s invasion. It is not yet comparable to Youtube and other online giants, but it sure has a distinctive feature that could one day be on par with its competitors.
Third attempt is developing a subscription based provision. If one is authenticated, one can view contents in any devices he wants. The important aspect of this move is that the companies are moving from an “ad-supported” model to a mixture of advertisement and subscription model.
Alluding to the reporter’s word, TV companies “silently domesticated” the disruptive technologies. Let’s see how this battle proceeds.
2010년 4월 4일 일요일
[Information Technology] Cloud computing
Another post regarding information technology!
This time, I want to introduce the concept of cloud computing. Wikipedia defines it as an “Internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, like a public utility.”
I tried to find a clip that can explain this concept in layman’s terms, and the following clip seemed to fulfill my needs.
http://money.cnn.com/video/technology/2009/11/19/tm_cloud_microsoft_salesforce.fortune/
One of the guy appeared in this clip defined it as “bunch of servers someplace out.” There used to be some big in-house server that was needed in a corporation to run softwares and systems, and this whole concept seems to have just replaced those requirements. Anybody can float around softwares through the server, and use it on demand.
The reporter also anticipates that in 2010, the whole cloud computing concept will be bigger than ever, due to some software giants’ introduction of cloud computing-based applications. One example will be 2010 MS office. At least for me, I will have to first try it and feel it to completely understand the real effect.
This time, I want to introduce the concept of cloud computing. Wikipedia defines it as an “Internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, like a public utility.”
I tried to find a clip that can explain this concept in layman’s terms, and the following clip seemed to fulfill my needs.
http://money.cnn.com/video/technology/2009/11/19/tm_cloud_microsoft_salesforce.fortune/
One of the guy appeared in this clip defined it as “bunch of servers someplace out.” There used to be some big in-house server that was needed in a corporation to run softwares and systems, and this whole concept seems to have just replaced those requirements. Anybody can float around softwares through the server, and use it on demand.
The reporter also anticipates that in 2010, the whole cloud computing concept will be bigger than ever, due to some software giants’ introduction of cloud computing-based applications. One example will be 2010 MS office. At least for me, I will have to first try it and feel it to completely understand the real effect.
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