3 posts tagged “economics”
Ten days ago I reiterated my view that "The dollar will collapse and US interest rates will have strong upward pressure" (see US Economic Prospects: These are the Good Days. March 10, 2009). And this seems to be happening, faster than I expected.
And within a few days ago, the first sign of these movements took place, with the US starting to buy up long term debt, causing the US dollar to decline for the week by more than 5 percent against a basket of currencies. This has been the largest decline since 1985. And according to Reuters, a fall of 5.2 percent at the close later on Friday would [would] make this week's dollar plunge the biggest since 1973 when the Bretton Woods system of fixed exchange rates was finally abandoned. This decline may also signal an equally significant currency regime change and shift in long run US economic role and fortunes.
From the US government perspective, this is a good move, assuming they also see the same crisis on the horizon. Essentially, they are shifting borrowing that would be short term (e.g. 90 days) to long term debt. This would make a lot of sense if they thought that short term rates would increase substantially during the term of the long term debt, and not have much prospect of falling again. It is an unprecedented opportunity to profit from intertemporal (between time periods) arbitrage -- an opportunity of which few others can take advantage.
By the way, if you haven't read it already, you should see Wired Magazines excellent article about David X. Li's Gaussian Copula Function, and how its misuse to measure risk in Credit Default Swaps (CDS) has been a key factor contributing to the current credit market crisis.
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all d
My bet is that foreign MBAs from top US schools are an exceptional bargain this year because they are effectively barred from jobs at most major employers in the finance industry.
We all know that the best paying industry, finance and Wall Street in particular, is in the middle of an implosion and series of massive layoffs. And just about every big and important firm has received money from the US government as part of its bailout (even if just to show there was no stigma in doing so). But one important side effect of that is that any of these firms that have accepted money from the government, and laid off workers, is being barred by US immigration authorities from getting visas allowing foreigners to work for them. This just hit the news with the headline that Bank of America has withdrawn all jobs offers from foreign MBAs. Naturally, this means more foreign MBAs trying to get jobs in other industries, increasing competition and driving down wages, especially for foreigners, in those places where they can work.
In the past, immigration authorities had responded to the recession by making some special allowances for recent graduates. The Department of Homeland Security had announced (April 4, 2008) that they would let recent graduates work in the country longer as part of their post-graduation practical training period. Normally, after graduating, students can work for just about anyone, anywhere, with not special paperwork, for up to twelve months. This had been extended to seventeen months.
One of the reasons why I found Phnom Penh in Cambodia so much more attractive than Ho Chi Minh City in Vietnam is that Phnom Penh still has much of its old charm in tact despite past efforts to destroy the place. It still has palaces and charming old buildings.
This is changing quickly. Soon Phnom Penh may become yet another Asian city filled with either tacky or characterless buildings whose only merit is that they are new.
As a case in point, The Economist reports this week that one of my favourite hotels in town, The Renakse, a charming faded colonial error place, has been boarded up, waiting to be demolished to make way for a new development. I am so very glad I stayed there while I could, but its destruction is a real loss for Phnom Penh's prospects of becoming a beautiful modern city.
