Update No. 59 – 11/05/12

Some links this week, I don’t know if you’ve noticed, but the internet is a real gold-mine of information for the inquisitive mind.  OK, you’ve probably noticed…

There was some continuing good economic news out of China, with the PMI expanding (just, from 53.1 to 53.3) for the 5^th consecutive month as reported on Bloomberg.  This is probably positive for Australia, though I must confess I view most Chinese statistics with a healthy measure of scepticism.  For example, it should be noted that this April figure was reported at lunchtime on 1 May, which makes one wonder, especially given Chinese figures are rarely subject to the retrospective adjustments our own Australian Bureau of Statistics is prone to…

I found this LA Times article, which talked about salaries at Lehman Bros in the year before it collapsed.  The 50 highest paid employees earned a mind-boggling $700m between them in that 12 month period.  It must be noted a substantial portion of this was paid in what turned out to be worthless stock, but this does not change the frightening notion here, which to me is the absolute detachment between what a person can realistically generate in economic value for an organisation and what people are paid.  I am usually a defender of the market-making in a free market, the idea that if you don’t feel you are being adequately compensated for your efforts that you take your efforts elsewhere.  That said, I am absolutely sure that you would be unable to prove to me (in any organisation, not just a Wall Street bank) that there is any organisation, anywhere, where there are 50 people who should have underlying compensation of $700m.

I was incredibly impressed with the FelixTV episode within this post by Felix Salmon.  After talking with an advocate of gold as a currency who said ‘no-one ever… uhh rejects gold’, he tried to take a 1 gram gold bar out into NYC’s Times Square and spend it.  It turns out gold doesn’t make much of a currency… The most interesting part of the story was that in order to acquire the gram of gold, with a market value of about $53 ‘my producer wound up paying double that’, so before the exercise started, the most basic and important element of a currency was breached, when the immediate result of acquiring the currency was a 50% loss of value.  Now, the thinking person will note that were gold to become a more commonly used currency, this loss of value from exchange/conversion would diminish, but it still bears remembering for the gold-bugs.  If I wish to take my Australian dollars and buy US Dollars, I accept that I am going to be shaved a couple of percentage points to the current exchange rate.  Also, I bet if I took my Australian Dollars to any of the stores Felix went to in Times Square I would probably have a similarly hard time making a purchase, but it is an interesting thought exercise.

The GDP numbers from the US a couple of weeks back led to some panicky comments from some areas of the media.  Karl Smith provided a thoughtful analysis on the numbers.  The key point from his analysis was denoted in this quote as he assesses the elements driving the ups  & downs:

“Federal Government: Subtracted 0.46 pts. SMACK. That is much bigger than expected and almost all comes from military drawdown. Two big quarters in a row of shrinking military expenditures.”

State & local added another 0.14% decline, for (-0.6%) as a consequence of declining Government expenditure.  I must say I find it hard to be upset about declining Government expenditure, I am particularly inclined to find declining US military expenditure a good thing, I would love to see an analysis as to how much the growth in military expenditure over the last 10 years or so has added to USGDP.  That expenditure (and its knock-on effects) must be stripped out to see how the underlying economy was really going through the period – Tony Hansen 11/05/12.

EGP Fund No. 1 Pty Ltd. Up by 6.95%, lagging the benchmark by 0.44% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 2.95%, leading the benchmark by 9.89% all-time (April 1^st 2011).