Advertisement

Blog

Tablet vs. Notebook; Inflation vs. Liquidity

On May 16, in a ballroom of the Hong Kong Four Seasons Hotel, a roomful of investors will take their seats and, as best as they can, try not to be terrified. That day they'll be receiving advice on 2011 financial strategy from Bank of America-Merrill-Lynch, one of the American banks that crawled from the wreckage of the 2008 financial crash.

Representatives from BofA-Lynch's fixed income and commodities desks, who are hosting the meeting, will be expected to present the Asia-based investors with “a strategy that discounts regional issues like Japan's earthquake, emerging Asia's worrying inflation and interest rate hikes, along with rising oil, the end of QE [Quantitative Easing, or interest rate cuts], and the deteriorating sovereign outlook in developed markets.” This, according to the invitation for what's billed as “The Global Macro Forum – What's Next?”

For electronics manufacturers, discussions of broad trends like those can be viewed as a luxury, compared to more immediate consumer trends. That's understandable. The thing that keeps a Shenzhen factory owner up at night is whether a middle-class American with $500 is going to the Apple store for an iPad, or to Best Buy for a Windows laptop. Those consumer decisions — not long-term economic trends or the price of oil — can seem to affect the factory's fortunes more directly.

But this month, the macro issues may finally be getting big enough to overshadow consumer trends. Wage increases in China have given way to a generalized rise in costs across the region, and rising shipping costs (related to high oil prices) are transforming, from a cyclical cost of doing business, to permanent shifts in the economics of Asian manufacturing.

India's finance minister, Pranab Mukherjee, has called for international coordination in anti-inflation efforts. “Over the last four years,” he told the Hindu Business Times, “we have moved from a fuel crisis to a food crisis to a financial and economic crisis and now, we are back to a food and fuel price crisis.”

The question used to be which country had the right mix of resources, labor, and infrastructure. Now the first two have become nearly impossible to predict, and the last, impossible to price — trapped in currency and commodity price swings. Last week, the US dollar hit a three-year low against the euro and similar lows against the yen and Australian dollar.

So even that $500 laptop isn't really $500 any more, and the Chinese or Malaysian manufacturer is finding the value of dollar-based supply contracts hard to predict. The weak US currency makes American goods cheaper overseas; the Institute for Supply Management reports that US manufacturing grew in April for the 21st straight month. Twenty years ago, would anyone have predicted that, by May 2011, Asia would be competing with the United States in, of all things, manufacturing.

So in Hong Kong, as members of the Asian business community sit down with the Wizards of Wall Street, the conversation will be shifting from “tablet vs notebook” to “inflation vs. liquidity.” It's not a conversation that will affect how device makers will do business this summer. But it may tell us whether they'll be in Asia in 10 years.

14 comments on “Tablet vs. Notebook; Inflation vs. Liquidity

  1. Taimoor Zubar
    May 6, 2011

    I think this will be a great discussion and just in time as the entire world is witnessing economic changes. One of the most important aspect here would be finding ways to stabilize exchange rates and reducing the risks and uncertainty involved with fluctuating dollar value. Besides, the impact of the Japanese earthquake on the Asian economy and that on the overall world should also be discussed.

  2. Anna Young
    May 6, 2011

    Taimooz, as you rightly stated that the discussion' should be centred on stabilising fluctuating exchange rates, I do agree.

    'Trapped in currency and commodity price swing' seems to be a major issue at present- I wonder what the outcome of this meeting will be? It will be interesting to know how representatives from BoFa – Lynch's fixed income commodities will be able to present 'a strategy to discount' regional issues to these investors.

     

  3. Anand
    May 7, 2011

    “The weak US currency makes American goods cheaper overseas”

    I guess US in particular is probably comfortable to see its currency depreciate to make it more competitive and to possibly help inflate away some of its mounting pile of debt. Moreover the fact there is no obvious alternative to Dollor as world's reserve currency makes it even more comfortable.

  4. eemom
    May 7, 2011

    I am really glad this discussion is taking place.  This is a global problem with inflation, commodity pricing as well as exchange rates.  This is not which manufacturer will come out on top, it will hopefully be a discussion of how to even the playing field so that the world economy recovers and countries that do business can find the exchange mutually beneficial.

     

  5. prabhakar_deosthali
    May 8, 2011

    I am not sure how seriously these predictions should be taken by the investor community. The people or the institutions which really control the world economic scenario are the fiscal policies of the governments , the state owned banks' lending policies and the trade unions' demands for the wage revisions. The think tanks in the bodies like International Monetary fund may have a better  birds-eye-view on such matters.

  6. Hardcore
    May 9, 2011

     

    Does any country have the right mixes of resources?

    Even China has been fairly aggressive in recent years with regard to making friends with resource rich countries around the world, but ultimately the resource that matters the most is going to be 'Expertise'.

    It is only with this resource that the other resource requirements can be correctly managed, 'short of a material':- use 'expertise' to find other alternatives to the material, or better still exploit a low value resource from else ware but reengineer it into something useful.

    This is a direction Japan is taking since China started to squeeze the  rare earth market, the Americans have taken a more physical approach, that approach being stockpiling and opening new mineing resources that were previously un-echanomic to develop,  but again this has required 'Expertise' to be applied to solving the pollution problems associated with  extracting these materials. China takes a simpler 'Expertise' approach which is:  'just polute' and worry about it later.

    However we have also seen China recently attempting to purchase Western companies, not so much for the technological aspect of what they contain, but rather gearing up towards the Expertise aspect, it would appear that they are slowly realizing that Technology does not equate expertise in a particular field, or to put it another way (my mom owns two mobile phones, she can use them and knows how they work, but she is going to be hard pressed to innovate a new mobile phone technology or solution).

    Personally I would not put much store in financial expertise, after all it is such 'expertise' that has presided over each and every single financial market crash, if indeed these people are experts, then they would have seen it coming or at the very least put systems in place to reduce or negate  such  situations.

    HC

  7. mfbertozzi
    May 9, 2011

    I am taking the opportunity to share some opinions also from my side. I agree with HC, maybe any countries have right mix of resources. Furthermore, since decades ago, we assist to the process that US $ is per excellence the currency influencing any economy and as of today, personally speaking, there aren't others across the globe with similar “power” and “weight”.

  8. jbond
    May 9, 2011

    Until something can be done about the daily fluctuations of currency exchange rates, inflation and the drastic rise in commodities, this talk will not do much. Yes, it might bring out a few ideas and shed some light on current issues, but this is not a group that can fix global issues. All they can hope to accomplish is to hopefully prepare themselves for the global rollercoaster of economics.

  9. seel225
    May 9, 2011

    This is such a great discussion on global economic situation, which is varying on many factors natural calamities like Japan's earth quake, war on Libiya, these factors having huge impact on daily fluctuation in dollar exchange rate, rising gold and oil prices. I hope there should be an end all these economic crisis in future.

  10. Anna Young
    May 11, 2011

    Jbond, you’re absolutely right that the discussions may not change much; nevertheless, it is achieving something. The fact that it is been discussed.

  11. Ms. Daisy
    May 12, 2011

    HC;

    Resource acquisition (such as opening new mines by Japan), effective management of all resources (including re-cycling of Rare Earth Metals), expertise in human and money management, and ongoing innovation are the basic essentials that have to work well together in an interpendent and inter-related manner (systems approach) to achieve good outcomes. I don't believe there is a magic ingredient toto add.

    No one country has all the right mixes of resources, hence the reason for the global economy.

  12. saranyatil
    May 13, 2011

    jbond , interesting point we need to see what all the economists are going to do?

  13. Kunmi
    May 18, 2011

    Life is full of ups and downs. The impact on the US currency due to ungoing world crisis may exist for awhile. Inflation leads to liquidations. How many businesses have been impacted? How many have closed their shops? It appears endless but we should still hope that things will get better with time.

  14. elctrnx_lyf
    May 20, 2011

    The inflation has a big impact on all the businesses at the time when we actually see a steay recovery from the different crisis. But this is definitely a cycle .. it repeats and repeats. It is very important for countires like China and other developing nations to actually have a strong dollar value to gain good profits on their imports. But at the same time as the economy of the developing nations becomes strong enough to weaken the us dollar in the near future.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.