What really caused Inflation ?

Some believes inflation is a function of too much economic growth. In an increasingly interconnected global economy, shortages of labor and manufacturing capacity in any one country cannot be inflationary. They can't because, as we've regularly seen with U.S. companies, they have always accessed the world's supply of labor and capacity when producing the goods we buy. Even if we assume--as the Fed seemingly does--that the U.S. economy is closed the Fed's definition still wouldn't pass the most basic of scrutiny.


Indeed, labor shortages in any one country are always solved by new labor force entrants seeking to achieve the higher pay created by shortages, by the certain migration of workers from weak to strong labor markets and--most notably--by technological innovations that reduce the need for human labor inputs. High capacity utilization is nothing more than a market signal suggesting more is needed. And because of robotics and other production innovations, capacity is hardly a static concept.

Then there are those who simply use consumer prices as the truest, most market-driven measure of inflation. It's hard at first to argue with this approach since changes in the value of money often show up in prices, but the largely quiescent consumer-price figures during a weak-dollar decade also come up charitably short.

For one, manufacturer can raise prices without actually increasing the nominal prices of the goods they sell. One easy example here would be peanut butter. The marketers for the product decided to indent the condiment's container in order to reduce its content by 9%. Starbucks has held the line on the cost of the pastries it sells by reducing the size of each pastry.

For two, high prices usually mean that they'll soon fall. Flat-screen televisions used to cost more than $10,000 few years back, but today these prices have gone down considerably to less than $2,000. High prices invite more competitors into the market the sale of all sorts of goods, which invariably leads to price reductions regardless of whether the dollar is strengthening.

Finally, rising prices due to a strong demand for one consumer item are not a sign of inflation. If consumer demand for one good is driving its price up, demand for other products must be falling in ways that will drive the prices of other goods down. In short, if there's such a thing as a true price level, it cannot be altered by expensive goods anymore than cheap imports can drive it down.

So what is true inflation? It seems the answer relates to the precious metal call “gold”. Used as a money measure for thousands of years, gold achieved its purely monetary role precisely because its role in the productive economy is so minuscule. As a result, nearly every ounce of gold ever mined is still with us, which means gold's real price is hard to alter thanks to a great deal of gold stock in existence relative to new discoveries.

When the price of gold moves, gold's price isn't moving; rather it is the value of the currencies in which it's priced that is changing. Gold is the objective indicator of inflation: When its price in any currency rises substantially, that means the unit of account is weakening and that we're inflating.

What does this mean for the economy? Broadly it means that when the dollar weakens such that the price of gold spikes, what is limited capital seeks safe-haven in hard, unproductive assets like gold, oil, art and property. Physical assets least vulnerable to monetary debasement win out over less tangible investments of the innovative or knowledge variety. In that sense it's no surprise that technology investments thrived in the '80s and '90s when the dollar was strong.

Getting back to inflation, rather than a measure of prices that change for various reasons that have nothing to do with currency policy, inflation is at its core the painful process by which capital flows to the hard assets of the earth and away from innovative, wage-creating industries. As individuals we don't so much hate inflation for the rising prices as much as we balk at it because our chances to capture good jobs and good wages are compromised for capital essentially hiding.

As the rising price of gold has revealed throughout the decade we've been inflating, no matter what the more quiescent government measures of consumer prices have been telling us. A weak dollar explains our economic unhappiness because a weak dollar is what has made capital disappear.

Is Google going into right direction with Nexus ?

Is Google in the right strategic business path going into the foray of making cell phones?
Google finally completed their product test dubbed the “Nexus” and just recently launch it in the US –the highly anticipated android phone against Apple "Iphone" which Apple has been flourishing in the market for the past 2 years with millions sold. But does Google's move into territory dominated by specialists like Nokia and Motorola and consumer electronics stalwarts like Apple and Samsung make any business sense?  If you ask MBA graduates, nothing is too late as long you have the right strategy and applying all the business theories, marketing tactics, R&D, etc, you will still get a substantial market share which is still a “big pie” in the phone business to be captured by many players. Technology advancement is key to success as long you come with an “extra edge” in the mobile user platform.

Google is an Internet advertising company, after all, trafficking in search terms and text ads, the company has partnered with myriad handset makers and carriers to bring its Android operating system for mobile devices to consumers. Why would it ever want to bypass its partners, putting out its own phone

Here's an interesting peek into the free Web-based mobile phone downloads.
It comes from Myxer, a Florida-based website that claims one of the Internet's largest catalogs of free ringtones, wallpapers, videos, applications and games.

In its inaugural report on the behavior of its 30 million users, Myxer's compares the traffic it's getting from users of Apple's iPhone and Google's Android devices. From 1 billion downloads over the last three months of 2009, Myxer discovered several trends that may be less significant than they appear:

• Visits from users on the Android operating system grew almost 350% from December 2008 to December 2009, compared to iPhone visits which grew 170%

• Roughly 70% of the ringtone downloads made by Android users, and 48% of downloads initiated by iPhone users, came from the Hip-Hop/R&B genre.

• In total, Myxer delivered seven times more downloads to Android devices than iPhone devices in Q4 2009.

No explanation for why Android's traffic is so much higher than the iPhone's but the reasons could probably lie in the fact that creating original wallpaper and ringtones is relatively easy on the iPhone. Besides, the Apple's App Store offers many more games and other diversions than Google's.

Whatever happens, the mobile phone users will expect to see more applications available in both Android and Apple store and it could be an era of “Application-addiction” growing to take over other kind of human interest and whether is going to be bad or good to each individual, time will tell.

Investing Risk Factors

We all know in finance, higher returns equals higher risk. It's a basic fact of investing, yet working out just how much of a gamble you are willing to take with your hard earned cash is far harder to pin down.

The other side of the story is when individual get so caught up chasing higher returns they ignore the risk factor.
The willingness to take risk is just one facet in managing investment risk. It is even more important to ask yourself this: Do you need to? Are you able to afford to lose?

Here are three factors you should consider before investing:

-Willingness to take risk
Simply put, the willingness to take risk - called risk tolerance - reflects your attitude towards risk. It is the amount of risk you are comfortable taking, or the degree of uncertainty you can handle or if should you lose, are you still liquid in your assets.

For example, if you can sleep soundly even when your investments are experiencing dramatic swings in value, you are considered risk-tolerant. But if they keep you up at night, you are risk-averse.
Risk tolerance often varies with age, income and financial goals. Risk tolerance levels are usually classified as aggressive, balanced or conservative. Each level helps determine the percentage of equities and bonds to hold. Equities are deemed riskier than bonds.

-How much risk you can take
Besides measuring your risk tolerance, you also need to know how much risk you need to take to achieve your financial objectives. It is a useful indicator because you may realise that you do not really need to take the risk of investing in that product after all.
Perhaps your risk profiling score indicates that you are an aggressive investor who can withstand high portfolio volatility.

But there may be no need for you to undertake the new risk because you may be already close to meeting your financial goals.
The need to take risk - called risk capacity - is based on what returns a client needs based on his objectives.

- Ability to take risk
The usual risk profiling exercise carried out at most financial institutions helps determine your willingness to take risk but it does not re-present your ability to take risk.
Let's say the risk profile questionnaire indicates that you are a high-risk investor, but if you look at your financial health and commitments, it may show that you have a lot of debt. This means that you are unable to take high risks even though your risk profile says otherwise.

In some banks, they assesses risk ability and overall pro-duct suitability by collecting information on a customer's investment time horizon, income level, employment/income status, financial health such as cash flow and net worth and age.


Balancing Risk

Providend maintains that using the risk profiling questions alone is insufficient to adequately suss out a client's risk attitude. Besides assessing risk tolerance, it seeks to understand the client's risk capacity and ability to take risk.
It believes that it is able to really understand a client's risk appetite only after these three factors are aligned.
The three factors help determine the amount of risk that should be taken in a portfolio of investments.
The problem many investors face is that their risk tolerance, risk capacity and risk ability are not the same.
This is where the adviser's responsibility comes in. Even if an investor appears to have an appetite for a product with a certain amount of risk, the adviser must steer him away if he feels that the client does not have the capacity and ability to take the risk.  Example, the GP cannot say he prescribed sleeping pills because that was what the patient wanted. In the same way, the adviser or the financial institution cannot say that he or it sold a client a high-risk investment which was not suitable for him because of the client's lack of risk ability, simply because that was what the client wanted.

Professionals owe a duty of care and they should give professional advice including advising an eager customer against investments which are unsuitable for the customer.
In a scenario where making an investment would result in a breach of these thresholds, the bank will either advise the customer to reduce his investment amount to a level within his risk capacity or advise him against making the investment.

As said, be prudent and careful, do not jump into the bandwagon like many who suffered in last year bonds issue.

Leadership Skills

Directing Leaders - define the roles and tasks of the ‘follower’, and supervise them closely. Decisions are made by the leader and announced, so communication is largely one-way. Less autonomous for the follower to make decisions and more dependent on the leader to provide directions.

Coaching Leaders - define roles and tasks, but seeks ideas and suggestions from the follower. Decisions remain the leader’s prerogative, but communication is much more two-way. Follower has some leeway to make some decisions and answerable to mistakes made.

Supporting Leaders  - pass day-to-day decisions, such as task allocation and processes, to the follower. The leader facilitates and takes part in decisions, but control is with the follower.  Follower may feel more confident in making decisions with the support from the leader.

Delegating Leaders - are still involved in decisions and problem-solving, but control is with the follower. The follower decides when and how the leader will be involved.  Follower gets more freedom in making and taking decisions and actions.

Another approach categorizes styles according to emotional intelligence competencies, some of which work better than others in specific situations. These styles have each their pros and cons :

Coercive: The “Do what I tell you to do” style demands compliance by the follower. It is especially useful in turnaround situations, in a crisis, and when you faced with difficult employees where you need to set an authoritative tone and get instruction followed. However, using this style inhibits your organization’s flexibility and can dampen staff morale and motivation. There may be no improvement in work environment and no new ideas being created.

Authoritative: This style mobilizes people toward a vision. Specifically, it provides an overarching goal, but gives others the freedom to choose their own way of reaching it. This approach is most effective when a business is at sea and needs direction, or during an economic or business downturn. This style is less successful when the leader is working with a team of experts who may have more experience—and may disagree with his approach.

Affiliative: This “people-first” style creates emotional bonds and team harmony. It is best used when team coherence is important or in times of low staff morale. But this approach’s focus on praise may permit poor performance among employees to continue unchecked, and employees may lack a sense of overall direction. The downside of this style, however, is that it may result in indecision, and some staff may be confused and leaderless as the directions set could be unclear.

Democratic: This style builds consensus through participation. It is most appropriate when organizational flexibility and a sense of individual responsibility is needed. The downside of this style, however, is that it may result in indecision, and some people may be left feeling confused and leaderless.

Coaching: This style focuses on personal development. Coaching leaders help people identify their strengths and weaknesses, and tie them to their career aspirations. While this style is highly successful with people who wish to improve professionally, it is largely unsuccessful with those who are resistant to learning or changing their ways.

While some styles may be more comfortable for you to adopt than others, the more you stretch yourself to learn a range of styles, the more effective you will be as a leader.

EVA versus ROE ?

In business as in everyday life, be careful what you wish for. Lehman Brothers, a defunct company had wished for a better return on equity(ROE) and what could be wrong with that??  It paid its executives according to that measure and their men did exactly what they had to deliver to reach the ROE quotas. In some years the firm had the best ROE in its industry and was bigtime in it's performance compared to others.

But now it had been realised LB is "dead meat" because managing for ROE seemed to allow financial staff to overborrow; after all, debt looks to be capital that earns a return (in good times). Yet it isn't equity, so extreme leverage simply juices ROE until bad times arrive. Their staff had wished for the wrong thing, managing for the wrong ratio and eventually busted the reputable and renowned company.

The chilling fact is that every other ratio out there can lead to the same disaster. Gross margin? Earnings per share? It's easy to make any of them look better while damaging the corporate financial banking and business.

Which is why corporations nowadays swing to a new concept and theory ratio, i.e. EVA and is maybe intriguing but needs more in-depth knowledge on this terminology. It has been developed by consultant Bennett Stewart, one of the creators of the financial measure called economic value added, or EVA.   [ Our company uses it partly to retained "valuable staff" with lump sum payout yearly,i.e. if company is in the black. It is one of the useful retention tool, apart from others like, share options, bonuses, good career path, promotions, etc ]

Now many firms use this term, including Siemens, Best Buy (BBY, Fortune 500), and Herman Miller (MLHR), EVA is essentially profit after deducting an appropriate charge for all the capital in the business. Because it accounts for all capital costs, its proponents say, EVA is the best measure of value creation.
Now Stewart is making a bold claim about his latest idea: EVA momentum, he says, is the one ratio that can't be manipulated. "It's the only percent metric where more is always better than less," he says. "It always increases when managers do things that make economic sense." If he's right, it is worth knowing about -- for managers at every level and for investors.

EVA momentum idea

It's the change in a business's EVA divided by the prior period's sales. So if a company increases its EVA by $10 million and the prior period's sales were $1 billion, then its EVA momentum is 1%. That's not bad, considering that for most companies this figure is zero or negative, and the average for many companies is generally around zero.

The key insight is that achieving high EVA momentum requires a business to do two difficult things at once. It must grow while at the same time maintaining healthy EVA profit margins or improving poor ones.

Can this ratio be gamed?
It's hard to see how. A popular gambit of conniving managers is to shrink a ratio's denominator recklessly, which is what Lehman executives did when they cut the E in ROE dangerously low. But the denominator in EVA momentum is the last period's sales, so it's fixed going in. Relentlessly jacking up EVA -- the numerator -- is difficult; a proper calculation of EVA values spending on R&D and employee/staff skill and knowledge training, those long-term investments that help companies over time.
EVA momentum is quite a new concept or idea mooded to measure hundreds of companies however real businesses have yet to apply it. What will happen when this ratio confronts actual managers trying to make actual profits. But when a big new idea comes along, adopting it first creates a major advantage. This could be one of those times.

EVA momentum getting it right

1. Don't obsess about sales or profit margins. Managers fixate on how to increase their company's revenues, but if it doesn't boost EVA, it does nothing to create value.
2. Bail out of EVA-negative businesses. Ford's sale of capital-intensive, EVA-sapping Jaguar and Land Rover shrank the company, but in the end increased its value.
3. Annihilate wasted capital. Cutting working capital, as Wal-Mart (WMT, Fortune 500) did in 2009, and offloading unproductive assets are great opportunities to build EVA when growth is slow