bizzXceleration: Performance, Value and Profit

1) Europe is experiencing rising inflation which implies the ECB will maintain higher rates which in turn means continued pressure on the dollar. Their experience appears to be quite different from ours so far though the EU economies are slowing.

2) India is experiencing the same accelerating labor costs in the high-tech service industries that China has been in its' coast areas. This is a natural, predictable and predicted consequence of growing development. Unfortunately those predictions and analysis which could have served as basis for company and investment planning were in obscure corners of the economic world where models are tested against data. If you'd like to dig (a recommended, highly) introduction that will tell you a lot about these issues is Pop Internationalism by Paul Krugman.

3) China is also experiencing high inflation and slightly slowing growth. Combined with the fragilities exposed this winter and the Tibtan unrest this will pressure the system. If China doesn't keep it's growth above a certain level their "Social Contract" of jobs and prosperity for stability and Party control is threatened. That's the Dragon in the room. In the meantime the Yuan is rising rapidly (for it) against the dollar which should help on the inflation front but threatens to weaken an underpinning of the dollar by reducing foreign purchases of US securities. If the Gulf Nations de-couple from the dollar the Fed would be under severe pressure to raise rates.

4) Russia has built it's economic miracle on the back of the oil boom and used it to restore badly damaged pride. Having treated them with so little respect for so long it's no surprise that nationalist recover has seen growing nationalist policies. Which is now backfiring badly on everyone as Russian oil production is dropping. Yes, I said dropping. Because they lack the investment, technology and expertise to develop the new areas and the old field are tired. If you'd like to get a grasp on the Russian's attitudes carefully listen to Russia's UN ambassador on the Rose program. Comes 'round, goes 'round...where's Aretha when you need her.

5) Mexico on the other hand isn't a newcomer to nationlist intransigence, self-serving and corrupt politics and self-inflicted unintended consequences. With the growing worldwide inflation and resulting food pressures combined with a multi-decade drug war that's creeping across our border the stability of the country is, as always, in question. [For a survery of the metastasizing world food crisis and the consequence try Black Swans & Unintended Consequences: the Food Crisis]. The net result is sustained populism, PEMEX being run for private advantage of the oligarchy who runs the country and sustained lack of investment. All of whic is a long way of saying production at Cantorel, the big Mexican field, is dropping like a rock.

6) Turkey, one of the bright spots of the last decade of EM investment and development is going thru the early stages of an interesting crisis. For decades its' been a secular state with a growing Islamicist movement. The latter have been in power for many years now and done very well by the country but also pursued some revisions. The old powers that be are alarmed are moving in the Courts to suppress the AK Party. Oddly the Party has pretty much played by the rules. For you students of history this rather reminds one of when the Southerners in the US triggerred the Civil War by sneaking a Supreme Court ruling thru that made slavery legal in all states (check out Goodwin's "Team of Rivals" for details).

All in all there's some interesting rumblings going on out there...many of which don't bode well for several of the systemic pressures we're expriencing,e.g. supply-demand imbalances in oil, rising worldwide inflation, food crisis and political stability....TANSTAFFL.

READINGS

 European Inflation Accelerates More Than Estimated to 3.6%, 16-Year High  The inflation rate rose to near a 16-year high of 3.6 percent from 3.3 percent in February, exceeding an initial estimate of 3.5 percent published on March 31, the European Union's statistics office in Luxembourg said today. The euro extended its gains after the report, rising 0.6 percent to $1.5877 against the dollar. The higher-than-expected consumer-price gain will reinforce the European Central Bank's resistance to cutting interest rates even as economic growth cools.

Out of India Here's a unique twist: the high cost of doing business in India is pushing some smaller technology companies to relocate elsewhere in Asia. Soaring wages and rentals there are having a significant impact on mid-sized companies, many of which blossomed for several years amid a vast pool of well-educated workers and comparatively lower operating costs. Having more than tripled in size in just four years, the $52 billion software industry -- arguably India's best known overseas -- is now confronted with multiple challenges. The economic slowdown in the U.S., the single largest market for outsourced orders, has cast a shadow over near-term business prospects. It's being exacerbated by local issues such as an appreciating currency, rising fixed and operating costs, a growing shortage of skilled manpower and the prospect of a sharp tax increase. So great are the concerns that some smaller companies are actually considering shifting their headquarters and the bulk of operations to locations outside of India.

China's Economic Growth Probably Slowed, Making Inflation Battle Difficult China's economy probably grew at the slowest pace in more than a year and inflation stayed close to an 11-year high, complicating the government's efforts to cool prices without triggering a slump as exports slow. Gross domestic product rose 10.4 percent in the first quarter from a year earlier, according to the median estimate of 24 economists surveyed by Bloomberg News, after expanding 11.2 percent in the previous three months. The statistics bureau is due to release the figure at 2:30 p.m. tomorrow. Faster yuan gains failed to stop inflation topping 8 percent for a second straight month in March, according to the survey. China's cabinet, the State Council, said this month that the world's fastest-growing major economy faces dual risks: overheating and the threat of a slowdown. China's Economy Grew 10.6% in First Quarter; Inflation Near 11-Year High

China's sizzling growth (WSJ) China reported that its sizzling economic growth continued to slow modestly in the first quarter of this year. Combined with the increasingly gloomy outlook for the world economy, the gradual deceleration is igniting debate over how fast China needs to grow -- and how fast it can. China's gross domestic product expanded 10.6% from a year earlier in the first three months of 2008, down from a newly revised growth rate of 11.9% for all of 2007, the National Bureau of Statistics said Wednesday. The slowdown was mostly because of a weaker trade performance, as well as heavy snowstorms early in the year. Yet inflation, which Premier Wen Jiabao has declared the government's top economic priority, stayed high. Consumer-price inflation fell to 8.3% in March from a year earlier, down slightly from 8.7% in February. But a measure of producer prices accelerated to an 8% increase in March from 6.6% in February. The first-quarter growth figure was higher than nearly all economists had forecast, and thus might give the government a reprieve from domestic pressure to stop fighting inflation and start stimulating the economy.

Russian Oil Output Slumps Russian oil production, for years a vital font of new crude for world energy markets, has begun to stagnate and even slump, adding to market uncertainties that have helped push oil prices to records even as the global economy founders. Russian supply in the first three months of this year fell for the first time this decade, averaging 10 million barrels a day, a 1% drop from the year-earlier period, according to the International Energy Agency, the industrialized world's energy watchdog. That is dismal news for a country that saw double-digit-percentage output growth earlier this decade. The slowdown in Russia, the world's second-biggest oil exporter after Saudi Arabia, has intensified already widespread concerns about long-term oil supply amid diminishing output from once-huge fields like Alaska's Prudhoe Bay and Mexico's Cantarell field in the Gulf of Mexico. Fading optimism that strong Russian output this year would offset ebbing flows from once-reliable sources like the North Sea has increased jitters in an already tense oil market. Russia's production slump also highlights a troubling reality: Despite soaring oil prices in the past five years, crude output among non-OPEC countries has remained essentially flat since 2005, defying the normal link between high prices and increased production. The reasons for that plateau range from spiraling exploration costs to the increasingly remote climates where new oil pockets are being found.

State Oil Industry’s Future Sets Off Tussle in Mexico A bitter debate over what to do about Mexico’s ailing state oil monopoly has dominated national politics here in recent weeks, tapping strong emotions on both sides and resurrecting the political fortunes of the leftist leader who narrowly lost the 2006 presidential election. Revamping the oil company, Petróleos Mexicanos, or Pemex, is perhaps the greatest challenge facing the administration of President Felipe Calderón, a conservative economist who won the disputed 2006 election by a hairbreadth. At stake in the debate is not only the future of the Mexican economy but also the supply of oil to the United States. Last year, Mexico was the third largest supplier of crude imports to the American market, after Canada and Saudi Arabia. The government has neglected the public company for 20 years, siphoning off its profits. Now production is dropping, reserves are dwindling, and Pemex lacks the technology to go after undersea oil, the administration says.But his rival, Andrés Manuel López Obrador, the former Mexico City mayor and presidential candidate, has called any private investment in Pemex a threat to national security and has accused Mr. Calderón of secretly seeking to sell off the industry to private investors, a charge the president denies.The leftist leader has skillfully used the issue to catapult himself back onto center stage in national politics after a year of remaining on the fringes. At mass rallies, he has threatened blockades of roads, airports and oil wells by his followers if the president even introduces a bill to Congress. With leftists promising unrest, President Calderón warned last week that ignoring the company’s problems would cause a catastrophe.