Is Economic Power Shifting from West to East?

Dear Reader,

This week I decided to do something slightly different since I am going to write about an interview I found on The Economist's website called "Stephen King talks about scarce resources". Since I am focusing part of my blog on resources I believed that this could be a very interesting interview to watch and report on. As some of you may already know, Stephen King is the group chief economist of HSBC, the Hong Kong and London bank. He has also written a book called "Loosing control: the threat to Western Prosperity", which talks about why emerging markets are posing a new threat to Western prosperity; this is also what he talks about in his interview with The Economist. 

http://www.waterstones.com/wat/images/nbd/m/978030/015/9780300154320.jpg

In the interview, Stephen King talks about the negative side effects of globalization such as the threat to western jobs, downward pressure on wages yet he focuses on the competition of scarce resources. Stephen King talks about how the Western society is so used to growing and always having more and how politicians keep promising that output is going to rise, income is going to rise and unemployment will be kept low, yet he believes this "Western" growth will soon end  due to the high growth of mainly eastern countries such as China, India and Russia. King explains that the west has already in the past experienced a scarcity of resources during the Industrial Revolution, but that it was easier for the powerful western countries at that time to hunt for resources elsewhere since most countries were extremely poor and could not find a way to use their resources. Now a days though western countries do not have this "monopoly on resources" anymore and the competition is hotting up again.

Oil, metal and food prices are not determined by the Western countries anymore and this is evident when we look at the riding oil prices in the past 2-3 years (oil prices kept rising throughout the financial crisis). People in the West are paying much more for their raw commodities yet their income is staying the same (this was not the case in the 1973 world food crisis when both raw commodity prices and wages rose). Today people are starting to fear the tremendous growth China has been experiencing, and Stephen King says that if things keep going the way they have been for the past 10 years, by 2030 only China will be consuming all of today's world production of oil. 

http://www.chrismadden.co.uk/news-cartoons/made-in-china.jpg

What Stephen King says is very interesting but it is nothing new, we all know that China is growing and we all know that emerging economies will play a much larger role in tomorrows economy. When looking at the interview I felt as though Stephen King was trying to scare the Western countries by telling them that they do not have total control over resources anymore, and he said it in a way that made it sound like he was appalled by this idea of "losing the monopoly". I personally believe that we only have ourselves to blame, we wanted globalization, we wanted to outsource our companies to the east to save money, we tried to take advantage of everything poorer countries had to give and now that they have learned to produce their own products and use their natural resources it is obvious that they will somehow try to use this newly acquired power against the western world. It is nothing strange and it is nothing that should surprise us and it was foolish of people to believe that the west would have the the power forever. 

            

             http://www.chrismadden.co.uk/news-cartoons/made-in-china.jpg

If the Western countries want to keep playing in the world market they will have to come up with new and improved ideas and find new ways to impress the world again. Nothing is going to change if we keep watching our plasma TV made in China, while eating our tropical fruit from Brazil and thinking of the next car we are going to by which is going to be fueled by Eastern oil. 

Have a good week,

The Financialista 

The Economist 

The Economist Multimedia (2010) "Stephen King on scarce resources" Date Viewed: 16th October, 2010. Available online at:

http://www.economist.com/blogs/multimedia/2010/10/stephen_king_scarce_resources

Images

Chris Madden (2010) Date Viewed: 16th October, 2010. Available online at:

http://www.chrismadden.co.uk/news-cartoons/made-in-china.jpg

Waterstones (2010) Date Viewed: 16th October, 2010. Available online at:

http://www.waterstones.com/wat/images/nbd/m/978030/015/9780300154320.jpg

World Food Crisis?

Dear Reader,

This week while reading the Financial Times I discovered an article which at first may not seem as important as other financial and world news, but when read through and analyzed it becomes clear that this news could negatively affect all of us. The title of the article I found is "Corn prices surge to two-year high" and the article itself obviously talks about the rising price of corn over the past week and the effects this might have on the world economy. 

                             

http://uwstudentweb.uwyo.edu/L/LPETER11/corn2.jpg

First of all, it is very important to understand why this news is so important and what all the uses of corn are. One of the main uses of corn is in the food market where it is used in cereal, baby food, frozen foods, ketchup, margarine, mayonnaise, tacos/ tortillas, chewing gum, chocolate etc... but corn is also used to make bioproducts, corn-oil, ethanol, feed, sweeteners and starch. Its used to make batteries, insulation, paper manufacturing and even aspirin! Only on automobiles corn is used to make cylinder heads, spark plugs, synthetic rubber finishes and the tires. We are in contact with corn products all day everyday. Corn is the most important crop grown in the United States and one of the most important ones worldwide. 

The Financial Times article states that corn prices hit a two year high on Monday, jumping more than 8% "as traders scrambled to buy after the US Department of Agriculture warned last week of “dramatically” lower supplies because of bad weather". Corn prices have surged more than 15 per cent over the past two days. Normally the day limit for corn in Chicago is 30 cents but the barrier has been widened to 45 cents on Friday after corn prices rose drastically over the week. many analysts think that corn prices could go up to 6 dollars a bushel (each bushel of corn can produce up to 2.5 gallons of ethanol fuel), a level like this has only been seen during the peek of the 2007-08 food crisis which caused much trouble in the world. 

                                        

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

One of the worst hit countries in the 2007-08 food crisis was Mexico where tortillas are extremely popular and (were) extremely cheap before 2007. The rise of the corn price obviously lead to an increase in the price of tortillas in some parts of mexico from $ 63 cents a kg to $ 1.36 - $ 1.81 dollars. With a minimum wage of $ 4.60 a day, many Mexican families were forced to either eat less tortillas (and be hungry) or switch to alternatives such as cheap noodles. This is just one of the many examples there are with the food crisis in 2007-08 along with increased prices of ethanol and meat.

Today the meat industry already warned of a "game changer" in prices and profitability due to the surprise contraction in the United States corn supply. Meat analysts forecast higher prices for beef, pork and poultry as producers pass on higher feeding cost, and shares of some of the world's largest meat producers fell sharply on Friday. Farm equipment such as tractors and fertilizers on the other hand soared  

Richard Feltes, analyst at brokers RJ O’Brien in Chicago, said: “Buy farm equipment stocks and sell food company stocks.”

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html

After reading this article I started thinking of how fragile the global food economy is and how one or two seasons of bad weather can cause such great damage to so many industries and to so many countries. Should we maybe start to think of more substitutes for corn since there aren't many around or should we be more cautious with how we use our resources? 

Have a good week,

The Financialista

Financial Times:
Mayer, Gregory (2010) "Corn prices surge to two-year high" Date Viewed: 11th October, 2010. Available online at:

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

Corn Refiners Association:
Main Website (2010) Date Viewed: 11th October, 2010. Available online at:

http://www.corn.org/products.htm

The Washington Post:
The Washington Post (2007) Date Viewed: 11th October, 2010. Available online at:

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html

Images:

Mayer, Gregory (2010) "Corn prices surge to two-year high" Date Viewed: 11th October, 2010. Available online at:

http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html?ftcamp=rss

Student Web (2010) Date Viewed: 11th October, 2010. Available online at:

http://uwstudentweb.uwyo.edu/L/LPETER11/corn2.jpg

The Washington Post (2007) Date Viewed: 11th October, 2010. Available online at:

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/26/AR2007012601896_2.html

Tesco Expands in the US

Dear Reader,



This week while reading the Financial Times I discovered a very interesting article regarding Tesco which is a global grocery and general merchandising retailer headquartered in the United Kingdom (Cheshunt, UK). Tesco is present in many countries worldwide including China, Argentina and Mexico. The article I read, which was entitled "Tesco overseas growth offsets slow UK" talks about Tesco wanting to increase the pace of its expansion in the United States.

The decision to expand even further in the United States came as a shock to some since Tesco has been having some slow growth in the grocery sales in the past year and they have therefore been focusing more on their non food goods which includes taking on catalogue retailers such as Argos with strong sales of toys and cookware and their clothing range. Tesco Bank has also been performing very well growing by 13% in the first half to £474m, with 6.5m customers for the retailer’s range of services, which include savings accounts, personal loans and car insurance.

http://www.freshradio.co.uk/resources/images/images/tesco.jpg

Surprisingly enough, the UK remains Tesco's slowest growing region in the second quarter. Total UK sales, including VAT but excluding petrol, grew 4.4 per cent in the quarter, against international sales growth of 11 per cent. Sales in Asia went up 12%, in Europe 9% and in America sales went up an amazing 45%. The US was the fastest-growing region in the first half, with like-for-like sales up by 10 per cent and total sales ahead 43 per cent, albeit from a small base – the US still accounts for less than 1 per cent of Tesco revenues. 

The Tesco expansion plan will bring the chain close to 400 stores in California within two years and they are expecting to see the first profits by 2013. Most of the expansion will be focused around coastal California although the initial plan was to open many more stores around all of the United States. Tesco was going to open new stores in new fast-growing cities such as Phoenix, Arizona or Las Vegas, Nevada but that plan did not succeed since they realized that these "fast growing cities" are really not fast growing, on the contrary, they are not growing at all, due to the subprime issue. Tesco is using the United States market also to expand their "Fresh & Easy" stores, which are only 168 at the moment and are also set for cumulative losses of more than £450m by the time Sir Terry retires next March, to be replaced by Philip Clarke.

While reading this article and researching more on Tesco I wondered if they were moving a bit too fast and being a bit too optimistic. Yes, Tesco is a great group and they have been performing quite well especially abroad but they have also faced some issues, especially in the United Kingdom and it might have been better for them to solve those problems before expanding even further. I feel as though Tesco is trying to do too much too soon and that by doing so they might lose much of the quality along the way (if there ever was any). Tesco has already been caught up in many scandals and maybe its time they start focusing more on the quality of their products and services then on the quantity. 

http://www.thesun.co.uk/sol/homepage/news/article230121.ece




Have a good week,



The Financialista 



Financial Times:
O'Doherty, John (2010) "Tesco overseas growth offsets slow UK" Date Viewed: 5th October, 2010. Available online at:
http://www.ft.com/cms/s/0/32273f0a-d047-11df-afe1-00144feabdc0.html?ftcamp=rss


The Sun:
Cox, Emma (2007) "Cheating stores' sell by scandal" Date Viewed: 5th October, 2010. Available online at:
http://www.thesun.co.uk/sol/homepage/news/article230121.ece


Image:
Fresh Radio (2010) Date Viewed: 5th October, 2010. Available online at:
http://www.freshradio.co.uk/resources/images/images/tesco.jpg


Video:
Thomson, Darryl (2010) "Overseas growth boosts Tesco" Date Viewed: 5th October, 2010. Available online at:
http://video.ft.com/v/625487065001/Overseas-growth-boosts-Tesco