Probably a good time to consider updating this FX service ad

The map in the background may unfortunately be too blurry to prove that I did in fact take this photo just this week in May 2010 (not, say in 2002) of a storefront prominent on Yonge street in the heart of downtown Toronto.

Not only is the Euro’s replacement of 12 national currencies ancient history as far as financial markets go, but the Euro has now replaced at least 16 national currencies in total (Slovenia, Malta, Cyprus, and Slovakia were added between 2005 and 2009 I think), and is the de facto currency of numerous other countries (Monaco and the Vatican are two examples, DPRK shows prices to foreigners in Euros, and I wonder if Giselle Bundchen are still flipping stacks of €500 notes). Not only that, but the past six months’ big news has included the great Greek sovereign credit crisis, which along with the downgrades of Portugal and Spain, has made real talks about possibly/already/at last breaking up the Euro.

While such an ad is probably not quite as mis-timed as one for CDOs in 2008, tech stocks in 2001, or Japanese real estate in 1991, especially since the target here are tourists likely to purchase €300-3,000 in spending cash for a shopping and eating weekend in Milan, wouldn’t it be more effective if the recent sharp fall in its price were emphasized? (“Most of Europe is now on sale! That €100 dinner that would have recently cost $150 is now over 15% off as €100 now costs only about €125)

Then again, in this day and age of ubiquitous ATMs and cards providing near interbank-rates on foreign cash withdrawals, I have long thought that it was currency storefronts like these, who would probably charge $135 for those €100 vs. a bid of $115, that are long outdated for the North American who tours Europe…

Iceland, part 2: a little sighting of clean energy

Call this too little too late to add a picture to this blog (I’d love to add more, but I can’t spend more time in front of a computer than I already do), or to talk about clean energy, but this cute sign photo was the first of two little signs I noticed on my 34-hour layover of Iceland’s famous clean energy practices.

The other was the geothermal water heating plant on the south side of Reykjavik…

Iceland

I just had the pleasure of a 34-hour layover in Reykjavik, Iceland, thanks to a convenient and inexpensive connecting flight back to London that allowed me to see somewhere a bit different this weekend.

I´m sure I´ve wanted to visit Iceland since childhood just to say I´ve been here (world´s northernmost sovereign capital with an interesting Viking history), and certainly since I started scuba diving I have wanted to dive in the crack between the continental shelves filled with delicious glacial water, but a more recent drive has been in watching what happened to the currency in 2008 in spite of its image as a real economy with advanced clean energy.

Back in about 2006-2007, I remember seeing investors keen on buying ISK (Icelandic Krona) denominated notes, which at the time were very high yielding (12% or more in local currency, separating out credit risk) and like most high yielding currencies at the time, it seemed to continually and reliably strengthen against the US Dollar from around 75 to less than 60 per dollar, I recall.  Then, within the few weeks surrounding Lehman, it had fallen from around 80 in early September 2008 to over 150 to the dollar in December 2008, before eventually settling back closer to its current level around 120-125.

At the time, the big dilemma that seemed to face me was where on earth I should travel to first, since suddenly the Korean Won, Brazilian Real, Polish Zloty, and even Australian Dollar had suddenly made all these countries seem as though they were 30-50% off.  Although it took me over a year to finally make it here to Iceland, my first impression seems to be that retail prices at least simply adjusted to the currency losing half its value by doubling prices (at least that´s what one local told me, though I´d love to hear from a foreign traveler who came here two years ago what things cost then).  While this makes sense in terms of anything with a “world price” (imported goods, crude oil, etc.), for more local things like services and food, this tells me that although Iceland does have its own currency and quotes everything in it, personal markets in goods in services may as well be dollarized or euroized (that last term is probably made up, but I just paid €34 for a hotel room, oddly enough quoted in Euros although it seems to be the one thing here that costs less than “New York Prices”).  It would then seem that the only difference having a floating currency might make is for anything contractual – mortages, leases, or bonds for currency speculators.  This is a fine division that makes teaching the economic concept of purchasing power parity hazy for many people I have met who are not as obsessed with currency markets as I am, but so far if there is one place I might take someone as an example of PPP in action, Reykjavik (which I at first impression describe as a weird halfway between Helsinki and Hamilton, Bermuda), might be it…

The Importance of Speaking English, part 3: Language table by GDP

If I needed one memorable example of how English dominates as an international language, it would be the fact that most of the gifts / plaques / certificates given to DPR Korea’s eternal leader Kim Il Sung (a sworn antagonist of British, Japanese, and American imperialism) from countries ranging from South America to the Middle East are mostly engraved not in Korean (the recipient’s language), not in Spanish/Arabic/Urdu (languages of some of the donors), not in Chinese nor Latin (perhaps more halfway languages), but in English.

For a less anecdotal and perhaps more objective answer to the question: “which languages should I encourage my children to learn well?”, one good prioritization would be to try and rank languages by the GDP produced globally in those languages. This may be hard to nail down accurately due to definitions of what to include under some languages (as well as the points below), but a simple crossing of two wikipedia tables provides some perhaps not-so-surprising rankings:

Rank	Language	2014 GDP	Countries
1	English	$ 23,485	21
2	Chinese	$ 15,467	4
3	Spanish	$ 7,324	20
4	Indian Languages	$ 5,547	6
5	Japanese	$ 5,046	1
6	German	$ 3,937	4
7	Russian	$ 3,614	10
8	Arabic	$ 3,583	17
9	French	$ 3,534	14
10	Portuguese	$ 2,876	3
11	Italian	$ 2,058	2
12	Bahasa	$ 1,950	3
13	Korean	$ 1,843	1
14	Turkish	$ 1,196	3
15	Dutch	$ 1,112	3
16	Farsi	$ 1,048	1
17	Polish	$ 910	2
18	Thai	$ 747	1
19	Swedish	$ 428	2
20	Greek	$ 415	2

“2014 GDP” means the IMF forecast for the year 2014 based on Purchasing Power Parity (PPP), not official exchange rate.

On top of the fact that these forecasts are optimistic of China’s continued 8-10%+ growth rate, English leads #2 by 50% in spite of several additional handicaps I deliberately kept in these numbers to be conservative about English’s position:

1. The GDP numbers are PPP, not official exchange rate, which significantly raises the numbers for low-cost countries like China and India in order to get a better measure of the relative local standards of living, but the relative purchasing power of these countries for goods with “world prices” (like Crude oil, high-tech electronics, etc.) would be far lower.

2. For English, only the percentage of the population that was considered native or spoke “well” by the source were counted (for example, even in the US only 96% was used), while for other countries, for example in Francophone Africa or Latin America, 100% of the population is assumed to speak French or Spanish.

3. The percentage of GDP for a country attributed to a language was taken to be proportional to the percentage of the English speaking population; however, it wouldn’t be hard to argue that in most cases, the English-speaking population contributes a disproportionately large share of that country’s GDP. For example, consider the percentage of GDP from India that comes from business done in English. This also implies that the “Indian Languages” family is probably also substantially overrated.

4. Countries with a national language where English is used for much international business (for example,Hungary or much of Southeast Asia) are counted as zeros towards English.

5. “Chinese” is aggregated as a single language, and includes the Cantonese spoken in Hong Kong and all the regional dialects on the Mainland and the island ofTaiwan.

Sources:

http://en.wikipedia.org/wiki/List_of_countries_by_English-speaking_population

http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_estimates_(PPP)

The one real excuse for no updates for so long…

… is that since Vietnam I have had little time to reflect and write on a personal computer, but especially since successfully completing the trip by arriving in Singapore by early November and looping back to India I have had almost bo access to any personal computer.

An idea for the time being: I’ll try and post some thoughts via emails from my iPhone as they come to mind, some of which may still include belated reflections on some of the later parts of the trip…

Vietnam: Advantages of investing in the small pond

Unfortunately I never got around to opening a brokerage account in Vietnam as I had hoped, but the reason I wanted to open one there and not in China or Russia was to capture a different kind of “small cap” effect with regard to countries.

The big fish / small pond analogy might be said to carry over quite well to investing.  In big ponds (like the US, Western Europe, or Japan), the “Big fish” are often regarded as “Blue chips” and considered relatively safe investments at the top of the food chain.  Of course, the bigger they are, the less room they have to grow, and the harder they fall.  Small fish in these big ponds (small caps) are often safe enough in large numbers (a diversified portfolio) and in spite of their higher risk, have more upside if they find the right niche and manage to rule it (I like to use clownfish in the ocean as example here).

Although there may be fundamental advantages to investing in small frontier markets like Vietnam, my favorite might have nothing to do with its growth story; I once was told that the Vietnamese market was so small that 2 million dollars in one day (less than 1,000 shares of Google) could move the VN Index.  With that kind of sensitivity, a small trader or long term investor could benefit simply because a sneeze decision by a western fund to put some money into the country could cause the index to double.  As of now, the hunger there still seems to be more for investors than for investment opportunities, so I might say the expected return should still be positive, unlike a few years ago, in spite of double-or-nothing like volatility.

In pond parlance, if the space shuttle rocket falls into the Atlantic Ocean, almost no one would notice (except in the 1:1,000,000,000,000 chance it lands on your sailboat), but if the rocket lands in a small lake, nearby villages could get flooded.  This type of epsilon might not be bad upside for small portions of randomness-seeking portfolios…

Vietnam and Credit Cards

Given my experience with declining credit card acceptance, especially in the great economcally advancing China, I had very low expectations for electronic commerce south of the border in Vietnam, a smaller economy with less market advancement, hype, an even lacking metro systems.

How surprised I was that in Vietnam, Visa and Mastercard seem more widely accepted than almost anywhere in China, and even small shops are happy to use them in exchange for a 3% fee (standard across the whole country, as far as I saw from Cat Ba in the north to Can Tho in the south).  In grocery stores, I found that my card didn’t work once because my card really was damaged, and I never once got the “machine doesn’t work” excuse that over half the grocery stores in China gave.

Although before I hinted that a cash economy based on small, unmarked bills tends to most benefit smugglers and tax evaders, it does seem that Vietnam is still largely cash based, but for some reason feels far more eager to print more business and get it on the books than seems to be the case of its northerly neighbor…