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Made in the World - This is a good column by Thomas Friedman for the NYT and IHT, in which he talks about the successful multinational companies which lead their industries - companies which Fullermoney refers to as the Autonomies. Here is the second half:

These C.E.O.'s rarely talk about "outsourcing" these days. Their world is now so integrated that there is no "out" and no "in" anymore. In their businesses, every product and many services now are imagined, designed, marketed and built through global supply chains that seek to access the best quality talent at the lowest cost, wherever it exists. They see more and more of their products today as "Made in the World" not "Made in America." Therein lies the tension. So many of "our" companies actually see themselves now as citizens of the world. But Obama is president of the United States.

Victor Fung, the chairman of Li & Fung, one of Hong Kong's oldest textile manufacturers, remarked to me last year that for many years his company operated on the rule: "You sourced in Asia, and you sold in America and Europe." Now, said Fung, the rule is: " 'Source everywhere, manufacture everywhere, sell everywhere.' The whole notion of an 'export' is really disappearing."

Mike Splinter, the C.E.O. of Applied Materials, has put it to me this way: "Outsourcing was 10 years ago, where you'd say, 'Let's send some software generation overseas.' This is not the outsourcing we're doing today. This is just where I am going to get something done. Now you say, 'Hey, half my Ph.D.'s in my R-and-D department would rather live in Singapore, Taiwan or China because their hometown is there and they can go there and still work for my company.' This is the next evolution." He has many more choices.

Added Michael Dell, founder of Dell Inc.: "I always remind people that 96 percent of our potential new customers today live outside of America." That's the rest of the world. And if companies like Dell want to sell to them, he added, it needs to design and manufacture some parts of its products in their countries.

This is the world we are living in. It is not going away. But America can thrive in this world, explained Yossi Sheffi, the M.I.T. logistics expert, if it empowers "as many of our workers as possible to participate" in different links of these global supply chains - either imagining products, designing products, marketing products, orchestrating the supply chain for products, manufacturing high-end products and retailing products. If we get our share, we'll do fine.

And here's the good news: We have a huge natural advantage to compete in this kind of world, if we just get our act together.

In a world where the biggest returns go to those who imagine and design a product, there is no higher imagination-enabling society than America. In a world where talent is the most important competitive advantage, there is no country that historically welcomed talented immigrants more than America. In a world in which protection for intellectual property and secure capital markets is highly prized by innovators and investors alike, there is no country safer than America. In a world in which the returns on innovation are staggering, our government funding of bioscience, new technology and clean energy is a great advantage. In a world where logistics will be the source of a huge number of middle-class jobs, we have FedEx and U.P.S.

If only - if only - we could come together on a national strategy to enhance and expand all of our natural advantages: more immigration, most post-secondary education, better infrastructure, more government research, smart incentives for spurring millions of start-ups - and a long-term plan to really fix our long-term debt problems - nobody could touch us. We're that close.

My view - I think Tom Friedman is right. Subscribers may recall that Fullermoney has made the same point on a number of occasions. The US does have a natural advantage because it invented globalisation and has more successful multinational companies (Autonomies) than any other country.

However in recent years the USA's Autonomies have succeeded despite the self-inflicted wounds of their home country. These have ranged from a corrupt banking sector which was the main cause of the 2008 financial crisis, to a 'deficits don't matter' attitude during the previous and current presidencies, political gridlock regarding deficit reduction, protectionist sentiments from both Democrats and Republicans in Congress, barriers to entry for skilled immigrants, an emphasis on wealth redistribution rather than wealth creation from the White House, and an energy policy which favours currently inefficient green technologies rather than development of the USA's abundant reserves of both conventional and particularly unconventional reserves of oil and natural gas.

Unfortunately, the UK and Eurozone countries have very similar problems, not least regarding debt. They also have some corporate Autonomies of their own as do a few of Asia's developed economies. These have also performed well and there are no limits to the number of successful Autonomies which could emerge in future, especially if the policies mentioned by Thomas Friedman in his last paragraph above are espoused by future governments.

The Autonomies were outstanding stock market performers last year but how do they look today?

This item continues in the Subscriber's Area.

Today's interesting charts - After six weeks to the upside for so-called risk assets, this is a good time to review some key price charts:

US 30-year T-Bond futures (weekly & daily) found support last Thursday near the lower side of their narrow range since November and appear likely to test the upper boundary extending back to September where at least temporary resistance can be anticipated.

This item continues in the Subscriber's Area.

Erwin Grandinger: Mortgaged Property Is No Salvation In A German Currency Crash - My thanks to the author - a distinguished contributor to Fullermoney on occasion - for the English version of his latest guest column in Die Welt, translated and published by EPM Financial Services Group. It is posted in the Subscriber's Area but here is the opening:

If you think mortgaged property ownership will protect your assets in Germany, you are wrong. The German state has plenty of experience of fleecing homeowners. Ever thought of escaping the euro crisis through buying property financed with a very low-interest loan?

Germans like to hold real estate to safeguard their assets. History shows that this strategy does not always work out; notably not in the context of a currency reform.

From today's perspective, a 90-year-old German, thus far, has experienced at least six currency reforms in his lifetime; if he had lived in West Germany, mercifully, it would have "only" been five. On average, that has meant a new currency every 15 years. Even if the younger generation has a different perception, currencies come and go in this country far too often. So you should say goodbye right now to the linear thinking that the national currency is a static factor in the lives of Germans.

Less than 100 years ago, during the early days of the Great War in August 1914, the first monetary Enabling Act ("Ermächtigungsgesetz") was passed: the German Reich received direct access to central bank credit and the backing of bank notes with gold was prohibited by law. The associated money creation led from 1921, seven full years later and long after the end of the war, to hyperinflation.

In November 1923, just days after Adolf Hitler's "Beer Hall Putsch" in Munich, the Reichsmark was converted into Rentenmark. The public debt of the German Reich was thus slashed from 164 billion marks to no less than 16 pfennigs (the "debt brake" of the Weimar Republic).

The second monetary Enabling Act was pushed through in 1933 when the German Reichsbank was put under the "direction and supervision of the Führer and Reichskanzler". The financing of the Second World War occurred so quietly that even in 1948, three years after the war, the majority of Germans believed in the continuity of the Reichsmark.

However, a not insignificant proportion of Germans, then as now, anticipated monetary and fiscal policy disaster and no longer trusted the system. What had been the options to safeguard assets against currency loss or inflation during the First and Second World Wars?

Then as now, many citizens began to take on debt and leveraged their wealth to invest in real estate. Throughout all this though, the German state knew how to use the "apparent property safeguard" to its own benefit - it consistently exploited the collapse of the old system to finance the new.

My view - You will not want to miss the rest of this fascinating history, not to mention Dr Grandinger's conclusion.

I am told that "WELT's online version of this op-ed piece has generated 10 times more 'clicks' than any other 'WELT online' story ever before."

Email of the day - On strongly endorsing a book recommendation (see also Friday's Email 2):

"Hello David. Great audio on Friday. So thank you for that.

The rest of this email and my reply are in the Subscribers' Area.

Clive Hale's View from the Bridge - Investment Biker…with apologies to Jim Rogers - My thanks to the adventurous author for his latest notes. They are posted in the Subscriber's Area but here is a sample:

The global financial system is in crisis but it won't affect me seems to be the current mantra. Debates about the bonus for Stephen Hester, CEO of RBS, and the impending loss of peerage for the former incumbent are merely smoke screens hiding far more important issues that politicians, and those who have elected them, are unwilling or in many cases unable, to contemplate. Better to join the "blame game" rather than have a serious discussion.

We have been living for far too long on a diet of bail outs, money printing and flawed economic policies, which the politicians fervently want us to believe are the solutions that will "see us through". Issuing more debt to solve the debt problem is just not going to work is it? Ask the Japanese. By 2013 their total government debt is estimated to reach one quadrillion yen - Y1,000,000,000,000,000 - that's a lot of zeros and just as you were getting used to trillions. Debt to GDP will be close to 250% and yet we hear that Greece will still be struggling at 120% and that is after the heroic assumption that there will be more EU assistance and a further round of debt defaults!

My view - The debt numbers in Japan and the west remain a frightening reminder that this is not just business as usual. However, we also know about all the money that is being printed. One of Fullermoney's important tasks is to discern where that money is flowing.


My personal portfolio: A new trade opened - Details and charts are in the Subscriber's Area.



Additional commentary by Eoin Treacy

Genome Cure for Ill Twins Paves Breakthrough to Doctor's Office This article by John Lauerman for Bloomberg may be of interest to subscribers. Here is a section:

The company's machines revealed that the twins had been misdiagnosed and incompletely treated for more than a decade. New medication put an end to an illness that had caused vomiting, muscle weakness and seizures. Their daughter, who had spells of breathing difficulties that turned her skin blue, was healthy again.

Genome sequencing literally saved her life, Retta Beery said. Nine years after scientists sequenced the first complete human genome -- the instruction manual for making all the body's cells -- the industry is poised for a series of takeovers and technological breakthroughs that will bring the technology into doctor's offices and patient hospital rooms. Equipment made by Life Technologies and Illumina Inc. is spewing out human genome sequences faster than ever and prices will soon drop to $1,000, below that of many widely used diagnostic procedures, such as colonoscopies.

Roche Holding AG's hostile $5.7 billion bid for Illumina may spark additional deals as pharmaceutical and diagnostic companies race to bring DNA scanning into routine medical use, analysts said.

My view The Nasdaq-100 hit a new 11-year high last week following an impressive rally. Some consolidation of at least part of those gains is increasingly likely. However, its relative strength is perhaps more important because it is one of only three indices to have hit new highs since the Q3 correction.

Apple remains a totem in the Index but biotechnology and pharmaceuticals have also been among the better performers and these sectors display greater commonality. M&A activity has also picked up with Roche acquiring Illumina, Amgen acquiring Micromet and Fujifilm acquiring SonoSite.

Biotechnology is an exciting sector. It promises to change not only how we live our lives but to extend our life expectancy though personalised medicine. The sector went through a difficult decade following the TMT bust where venture capital evaporated and only the strongest survived. However these same companies have been highly productive and a number are on the cusp of releasing ground breaking products. Investors are responding in kind and a considerable number of shares broke out of long-term bases last year. (Also see Comment of the Day on October 27th & 28th for a review of pharmaceutical and biotech shares).

This section continues in the Subscriber's Area.

Egypt Book 2012 Thanks to a subscriber for this interesting heavyweight (227-page) report from Capital Research. The full report is posted in the Subscriber's Area but here is a section:

The performance of the Egyptian stock exchange is likely to remain hostage to changes in the political scene, social unrest, and the resulting implications for the macro-economic environment. Hence, while parliamentary elections passed-off relatively smoothly, instability will likely persist at least until the ruling military council hands over power to a newly-elected president, expected by June 30th, 2012. Even then though, the restoration of business confidence will take time, particularly amongst those concerned over the investment policies of an Islamist-based parliament a likely scenario now given the success of the Freedom & Justice Party (FJP) in the recent polls. So, despite the EGX 30 currently trading at a discount of 45.3% vs. MSCI Emerging Markets on a F12m PER, the elevated political risk will in the main continue to dampen investor sentiment. Equally, uncertainties on the domestic front and the prospects of weaker global economic recovery mean that market volatility is likely to remain high as well.

However, despite the weak current data, Egypt still represents a genuine investment opportunity. With a sizable population, demand fundamentals remain solid. This inherent long-term investment story allied to Egypt edging closer to civil democratic rule with an investment-prop approach, means those who tap the market with a long-term vision will be the real winners.

My view North Africa's social upheaval has disrupted the status quo. There are now a large number of questions left unanswered as to how Egypt, Libya and to a lesser extent Tunisia will organise themselves politically, economically and diplomatically. The ascension of a religiously focused administration in Cairo is a concern but the market seems to have discounted an even more uncertain outcome.

This section continues in the Subscriber's Area.


Email of the day (1) on ways to trade the Baltic Dry Index:

Hi, I read with interest the piece relating to the Baltic Dry Index on 27th January. Is there any traded instrument that one can invest in that tracks the index itself? Many thanks.

My comment Thank you for this question which others may have an interest in. There are shipping futures traded on the Baltic Index in London and on NYMEX but they tend to be very illiquid. There are a number of shipping ETFs which hold the shares of both bulk and tankers companies.

This section continues in the Subscriber's Area.


Email of the day (2) on where to study behavioural finance:

Hi, I was intrigued by the piece posted by the subscriber studying for the PhD in Behavioural Finance on 30th January. I have a keen interest in the subject and am keen to pursue formally. Would you be able to advice as to the best schools for Masters degrees or PhD's in this area? Also, would you recommend any books on the subject (I have just ordered Daniel Kahneman's Thinking, Fast and Slow, which has received good reviews). Many thanks.

My view Thank you for this question which others may also find of interest. A straw poll of the office in London resulted in Durham University and London Business School being mentioned. Both David and I suggest that you carefully examine the breadth of courses offered at a number of universities. In our experience the way behavioural finance is taught tends to focus more on stoicism and rules rather than engaging in the maelstrom of human emotion.

Speaking engagements in the USA - I have accepted an invitation to speak to the Los Angeles chapter of the MTA on April 11th. The venue has yet to be confirmed but will be in the Long Beach area. Non-members are welcome to attend. The topic will be "To Hoard or to Horde: risks and opportunities from participating with the crowd."

I have also accepted an invitation to speak to the San Diego chapter of the MTA in the first week of April. A date and time has yet to be fixed but it will take place in the Del Mar area.

I still have some space available on my itinerary. If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.