Hobby Economist

Why Yahoo is Making Less Profit than Google?

2009-08-23T16:53:00.000-07:00

It seems that in USA, Yahoo is viewed by almost same number of visitors like Google but still, Google makes much more profit than Yahoo. According to David Goldman of CNN Money:

Yahoo reaches 80% of Internet users -- same as Google -- but its focus on content over search has yielded a lower profit than its rival. Is that misguided or bold?

I don’t think that the matter is that simple. It is true that Google is behind when it comes to content but what we should not forget is that with Adsense and Blogger, Google has helped to create bloggers like me to create content. Yahoo is following old style business method. I live in a third world country and still, I can earn my livelihood with Adsense and Blogger. The best part is that it is absolute free. On the other hand, it is impossible to do such thing with Yahoo.

So, what is happening is that Yahoo is providing content but not helping people like me. On the other hand, Google is helping thousands of people like me to produce content in Internet and then making money through our efforts.

I have no complain against Google and instead, I am perhaps grateful to them that I can earn some money with their support. No Wonder, Google is making more profit than Yahoo.

Swine Flu Crisis: More Panic Less Attack

2009-08-22T09:30:00.000-07:00

Now, in many countries of Asia, millions of people are afraid of the possible outbreak of Swine Flu. Well, the main problem is that people do not have adequate knowledge about this disease. So, they think it is very bad and it can kill many. However, I like to state here that until now, very few people have died from this disease. In fact, many more people die from fever and mosquito or water born diseases each year.

The media can play a vital role in dispersing the fear. If people become afraid then they lose mental strength. There is some kind of medicine for this disease and you can find more information here:

Swine Flu Vaccine Seems Safe in Early Trials

So, do not panic please.

British Airways: What more can be done to save money?

2009-07-03T13:24:00.000-07:00

British Airway PLC grounded aircrafts, cut seat numbers and postponed the delivery of 12 new A380 Airbus to save money. In June 2009, the airline carried 2.93 million passengers which was 5% lower compared to the figure of June 2008. The airline is going to cut 3,500 jobs and freeze payments. Already, the BA administrations went into talks with the union but nothing happened. Further discussions are going to be held in the coming weeks. Forbes.com reports:

BA said that in response to the "challenging economic conditions" it was cutting its summer capacity by 3.5 percent, rather than the originally forecast 2.5 percent. Capacity for October through March 2010 is expected to be down by 5 percent.

British Airways’ planes were 79.6% filled up in June 2009 which was 81.4% in 2008. In such “challenging economic conditions,” the airline is taking all necessary steps to cut costs. The airline is also grounding three Boeing 757 aircraft in the middle of next year and three Boeing 747-400s this coming winter. British Airways also postponed the delivery of its first six A380 airbus that were supposed to come in 2012. The rest six planes will arrive within 2016.

Related articles:

Forbes.com

Teck Resources is selling its stake to China Investment Corporation

2009-07-03T12:28:00.000-07:00

In order to reduce its debts, Vancouver based Canadian mining company, Teck Resrouces Ltd., is selling its 17% stake to China Investment Corp. (CIC) for $1.5 billion. Out of this money about $10 million will be used to clear bank debt. Currently, the sale is waiting for regulatory approval and it will be closed on July 14, 2009.

CIC is buying Teck Resources 101.3 million class B voting shares. CIC would also invest in the company’s future projects. In June 2009, Teck Resources sold its

one-third interest in Waneta Dam to BC Hydro for $710 million. The company also collected funds worth $700 million by selling its top assets.

In July 2008, Teck Resources acquired Fording Canadian Coal Trust for $9.8 billion but after the deal was done product prices went down and hurt the company’s profitability. In early 2009, Teck Resources was exempted a portion of its debt. The company is also looking for a partner to invest in its coal business.

Related articles:

Nature and Urban Life: Absolute Write Blog Chain June 2009

2009-06-23T08:45:00.000-07:00

This is the time for an Absolute Write Blog Chain. It is a blog chain without any theme. So, you can expect some dramatic change in tone and topic as the blog chain progresses.

I am starting June blog chain with this entry. The last few days were full of stress for me. It is very hot in my country. Monsoon Rain was supposed to come last week and it has not come yet. 2 weeks ago, I had to take my wife to a hospital because she became sick from summer heat. Today, she again felt weak and I became afraid. Fortunately, I did not need to take her to the hospital again. Even I am not well these days. I live in a city with more than 10 million people and like any urban dweller; I have lost touch with nature. Air conditioner is out of my ability and electric fan is the best thing that I can afford. This problem has made me think about nature.

I am now 34 years old and when I was 10-11 years old, there were just half the amount of people in my city. There were many more trees and nature summer was more moderate. I know that many people in Europe and America like to believe that there is nothing called global warming. Well, I can tell you from my experience that it is real. Climate has really changed a lot in the last 2 decades. It is true that the people in my own society and country have a lot of contribution in global warming but at the same time, too much consumption of resources in the rich Western countries is the main villain behind the changing nature of global climate.

In USA, I think that there are more than 700 cars against 1,000 persons. In my own country, it is not even 5 cars against 1000 persons. I have no complain against US consumers. They work hard and they enjoy life with their hard earned money. Not only that, we the people living in the third world countries, have our own fair share of bad activities to harm nature.

All I know is that we do not live in an isolated world any more. I wish that our political leaders and decision makers could come to this realization.

Next in blog chain is Fokker Aeroplanbau in his blog: I'm Always Right, Far Right

I wonder what he will say about it.

The participating blogs in June 2009 blog chain are:

Hobby Economist
I'm Always Right, Far Right
Far Seeing Fairy Tales
Benjamin Solah, Marxist Horror Writer
Writer Chick Talks
Delirious
Beyond Tourism: Florida's Yesteryear

Four-Lettered Words
Random Writerly Thoughts
Expressive World
Tika Newman
BillWardWriter.com
Made of Carbon

President Barack Obama’s financial reform: Will it change people?

2009-06-21T12:30:00.000-07:00

On June 20, 2009, the U.S. President Barack Obama in his weekly radio and Internet address, said that he is going to work on restructuring the country’s financial system. In his speech President Obama said that he would make sure that government gain more oversight on the business activities of the country’s top financial institutions. President Obama also proposed to form “Consumer Financial Protection Agency” that will make sure that banks and financial institutions clear the fine points to consumers before they take any kind of loan.

The Financial Regulatory Reform:

On June 17, 2009, President Barack Obama unveiled his regulatory reform plan. The proposals are now submitted to the congress. The reform if implemented would reverse all the policies set by President Ronald Reagan in the 1980s. Here are some of the major points:

More authority to the Federal Reserve over major financial institutions.
More power to the Federal Deposit Insurance Corporation.
Tap into the “shadow system” of the financial institutions to stop their deceptive practices and protect consumers.
Creation of a watchdog agency called “Consumer Financial Protection Agency” to oversee the interest of the consumers. The agency would make sure that
banks and credit card companies become more clear when they sell their products to their consumers.

Opposing the reform plan:

Banking officials are saying that the reform plan will increase the rich of the government and put them in the middle of the business which is not a very good thing.

In support of the reform plan:

There are many people who are also supporting the reform plan. They supporters are saying that the new reform plan would give a boost to the banking and financial sector of the country. In the light of the recent economic crisis, people have lost their faith on banks and financial institutions. The bank officials place their interest first rather than consumers interest. In order to get more money, they even gave loans to people with poor credit record or people who does not have the capability to clear their loans and it caused a serious crisis.

At this very moment what is most necessary is confidence which the consumers do not have any confidence on rating agencies. A recent survey revealed that only 9 out every 100 people in the U.S and the U.K trust their financial institutions. What President Barack Obama is trying to restore the faith of the investors and consumers through his financial reformation.

American people should accept the reality:

My view is that it is time for the U.S. people also become conscious about their financial condition and understand their limitations. There are many people who earn small amount of money and have no job security. Yet, they took loans from bank to buy house and cars and other expensive items. This is not a very good practice. I understand that it is a dream to have your own house or car but for some people it is too much to handle and may not come true but life does not end if you do not own a house or your own car.

Related articles:

Six Flags Inc.: Chapter 11 bankruptcy and restructuring

2009-06-14T12:29:00.000-07:00

On June 13, 2009, Six Flags Inc., with unianimous support from its lenders, filed for Chapter 11 bankruptcy protection. The New York- based company is the largest theme park company in the world. It operates theme parks in the U.S., Canada and Mexico. The company was already under $2.4 billion dollar when its current management team took over the company. Mark Shapiro, chief executive of Six Flags Inc. said that the company would not be able to sustain such huge debt load in the time of economic recession. Reuters reports:

The plan will result in a deleveraging of the company's balance sheet by about $1.8 billion, as well as the elimination of more than $300 million in preferred stock obligations.

More than three years ago, Daniel M. Snyder, owner of the Washington Redskins American football team, took over Six Flags Inc. Though a successful businessman himself, his management team could not make the company profitable. In the first quarter of the current fiscal year, the company reported a lost worth $146.3 million. After getting bankruptcy court approval, the company will go for restructuring.

Bleak future for American Airlines Industry

2009-06-12T05:58:00.000-07:00

Economic recession has hit the airlines industry of the U.S. pretty badly. Due to poor passenger turnover, air lines are now shedding off jobs to survive the recession. In the latest jobloss case, American Airlines, one of the top Airlines of the U.S. will eliminate 1600 jobs. On the other hand, Delta Airlines Inc., another major American Airlines is going to reduce its employees’ salary and will reassess its “staffing needs.” The company ordered its 400 flight attendants to take leaves or they would be laid off. Bloomberg reports:

Delta, the world’s largest airline, will slash available seats as much as 4 percentage points more than planned, for a cutback of 10 percent from 2008 levels, Chief Executive Officer Richard Anderson told employees. American, the second-biggest carrier, said it would shrink flying by 1 percentage point more than projected, to 7.5 percent.

Due to recession, number of people traveling by plane dropped significantly. Moreover, many business executives also stopped traveling as companies are trying to reduce their expenses. In order to attract customers, airlines are reducing air fares unless there is a major change in the country’s economic outlook there would be no major change in the business.

BlackRock Inc. will take over Barclays Global Investment Unit for $13.5 billion

2009-06-12T04:58:00.000-07:00

Famous American Investment management firm, BlackRock Inc., will buy the investment unit of Barclays PLC, another major European financial firm, for $13.5 billion. This merger would become one of the largest investment firms in the world with assets worth $2.7 trillion.

The newly formed company named BlackRock Global Investors (BRGI), will have a market value of more than $34 billion. In a statement issued by BlackRock Inc., the company said that it would pay $6.6 billion in cash and rest will be paid in stock for Barclays Global Investors. In the newly formed company, Barclays will have a 19.9% stake. The combined company will raise funds worth $2.8 billion through equity sales and borrow $2 billion from Barclays and other banks. Laurence Fink, Chairman and CEO, BlackRock Inc. said that this would widen the range of products offered by the companies.

John Varley, CEO, Barclays and Robert Diamond, President, Barclays’ will join the board of directors of BRGI. Blake Grossman, CEO, Barclays Investment Unit, will be vice chairman of BRGI.

Related articles:

Bloomberg

The U.S. share market overview June 11 2009.

2009-06-11T10:47:00.000-07:00

On June 11, 2009, the U.S. sharemarket observed an upward trend following a decrease in the number of jobless claims and rise in retail sales in May. According to the report of The U.S. Department of Labor, jobless claims fell by 24,000 to 601,000 last week. Though the number is quite high, it is lower compared to the January figure. On the contrary, retail sales rose 0.5% in May 2009 reporting the third monthly gain this year. Here are some of the highlights of the stock market:

Shares of Bank of America Corporation advanced 6.2% to $12.72.

Shares of Fifth Third Bancorp, the biggest bank of the state of Ohio, rose 4.9% to $7.70. Today, Goldman Sachs Group Inc. upgraded the bank’s share to “buy” from “neutral.”

Share prices of Regions Financial Corporation increased 6.3% to $4.25 marking the biggest gain in S&P 500. Share of the banks was also upgraded by Goldman Sachs Group.

Shares of Chevron Corporation advanced 0.7% to $74.33.

Share prices of Microsoft Corporation gained 1.1% to $22.80.

The Standard & Poor’s 500 Index increased 0.9% to 947.66 at 11:39 at the New York Stock Exchange. In March, the index hit a “12-year low” and rose 40% since then.

Dow Jones advanced by 67.19 points to 8,806.21.

Price of crude oil rose to $72.64 per barrel in New York, the highest in the last seven months. This also boosted the share prices of the energy companies. International Energy Agency (IEA), forecasted a rise in the demand of crude oil around the world for the first time since August 2008. In May, China bought 3.9 million barrels a day.

Yields on ten year treasury bonds went down 3.93%.

Related article:

Bloomberg

Arcandor AG and Metro AG of Germany are going for merger

2009-06-07T13:48:00.000-07:00

On June 7, 2009, Metro AG, a renowned retail chain in Germany, reported to have started discussion with Arcandor AG, a reputed retail and tourism company. The two companies are going to merge their departmental stores business to survive the economic recession.

Arcandor AG and Metro AG are owners of the two largest department store chains in Germany. Metro AG owns the Kaufhof chain while Arcandor AG is the owner of Karstadt department stores, most of which are situated in buildings of a real estate company, owned by Goldman Sachs. Chairmen of the three companies- Karl Gerhard Eick of Arcandor AG, Eckhard Cordes of Metro AG and Alexander Dibelius of Goldman Sachs in Germany have agreed to start necessary negotiations in the coming week.

Arcandor, which is on the verge or bankruptcy, asked for $610 million “in government credit guarantees.” However, many politicians are against this guarantee as they believe that the company’s failure is actually “management failure.” Business Week reports:

Chancellor Angela Merkel has said that Arcandor must seek a private solution to chronic problems that include too broad a portfolio and falling consumer demand.

"We naturally want to make every possible effort to secure an economic solution," Merkel said Sunday in Berlin.

On the other hand, Gerd Koslowski, spokesman, Arcandor said that his company could fulfill the government’s credit requirements after the alliance between the companies department stores business is formed.

Chrysler LLC sales: Whose side Richard Mourdock is on?

2009-06-07T12:36:00.000-07:00

Despite being refused by appeal courts two times, Indiana Pension Funds, headed by Richard Mourdock, is pressing on for stay in the Chrysler LLC sales. On June 5, 2009, US appeals court gave Chrysler the green signal to continue its sales to Italian carmaker Fiat S.p.A. The newly formed company known as the Chrysler Group will be jointly owned by the U.S. government, an autoworker's union retiree fund and the Italian Automaker Fiat. The deal will be finalized within June 8, 2009, if the Supreme Court does not intervene.

On June 6, 2009, the group of Indian pension funds filed another emergency appeal with the Supreme Court Justice Ruth Bader Ginsburg. CNN Money.com reports:

She could act on her own or refer the case to the remainder of the court. A stay from the full court would require a majority of the court's nine members.

"Absent a stay, the Court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States Government," the funds said in their stay application.

On May 31, 2009, Indiana State Treasurer Richard Mourdock, on behalf of three pension funds (Indian teachers, state police, and “Major Moves” pension fund), appealed against the ruling of the Federal Bankruptcy court that allowed Chrysler LLC to sell the companies top assets. The three pension funds bought shares worth $42 million which is less than 1% of the total debt of Chrysler LLC. Mourdock’s side of argument is that, as secured creditors, the funds deserves better against unsecured creditors like the Fiat. He said that for the first time in the history of USA unsecured creditors are getting more value in bankruptcy than secured creditors. The funds paid $ 0.43 per share and getting $0.29 cents which results into a $6 million loss for the state of Indiana and this is not fair. If the sales of Chrysler LLC is not finished by 4 p.m. within June 8, 2009 then the deal will be expired.

From my point of view, this whole legal fuss forwarded by Richard Mourdock seems to me like an effort to upgrade his public image so that he could run for governor. At least, the creditors are getting something out of this restructuring. If the sales is not finished, they would not get anything. Mr. Mourdock must remember that “Something is better than Nothing.”

Mattel Corp. agrees to pay $2.3 million for selling toys containing excessive lead

2009-06-06T11:32:00.000-07:00

Mattel Corporation, the famous American toy maker, will pay civil penalties worth $2.3 million for violating the “federal lead paint ban.” According to Consumer Product Safety Commission (CPSC) Mattel Corp. and its Fisher-Price pre-school division imported and sold children toys that contains harmful lead beyond the permitted level and violated 30 year old federal law. Both companies agreed to the penalty but they said that they did not violate any laws. CNN Money.com reports:

The Consumer Product Safety Commission said the fine against the No. 1 toymaker and its Fisher-Price pre-school division was the highest ever for the agency's regulated product violations and the third largest in its history.

"This penalty should serve notice to toy makers that CPSC is committed to the safety of children, to reducing their exposure to lead, and to the implementation of the Consumer Product Safety Improvement Act," CPSC acting chairman Thomas Moore, said in a statement.

In 1978, a federal law was passed which does not allow more than 0.06% lead “by weight in paints or surface coatings.” Between September 2006 and August 2007, Mattel Toys imported upto 900,000 toys including the famous “Sarge” toy car and large number of Barbies that does not comply with the Consumer Product Safety Act.

Target Corporation strikes at the heart of Wal-Mart Inc.

2009-06-04T12:34:00.000-07:00

In March 2009, Target Corporation, another top American retail chain, and one of the major rivals of Wal-Mart, opened their new retail store in Arkansas which came as a major surprise to many people. Arkansas is considered to be the “heart land” of Wal-Mart Inc., the retail giant. The new Target retail store is seven minutes away from the first Wal-Mart Store built in 1962 and twenty minutes drive (without traffic) from the headquarters of Wal-Mart Inc. in Bentonville. The first question that came to many people’s mind was “Will Target be able to attract people in its store?” Well, after three months of operation, the answer is a big YES. The store is not only attracting ordinary shoppers but also Wal-Mart executives as well.

The new Target stroing is going strong on grocery sales compared to Wal-Mart which offers fresh foods. The grocery section of Target stretches over an area of 136,666 square feet and sales only “frozen, canned and packaged foods.” Still, shoppers like the store because it comes as a suitable alternative to them. Even Wal-Mart executives frequently visit the store.

At the end of the day, Target store manager Chuck Simmons admits of a mental pressure as they are operating on Wal-Mart’s turf and comparatively Wal-Mart store gets more shopper than their’s. The company posted a slump of 6.1% in its May sales and it predicts a “flat sale upto 3%” in its second quarter. At the end of the day, it is all a healthy competition and that is what we would like to see more.

Related articles:

CNN Money.com

Stock holders propose. Wal-Mart Stores Inc. disposes

2009-06-04T11:55:00.000-07:00

On June 4, 2009, famous American retail chain, Wal-Mart Stores Inc., announced to create more than 22,000 in the current fiscal year through opening 1,300 new stores all over the U.S. The job positions include: Positions will include store management, pharmacists, human resources managers, customer service associates, cashiers and sales associates.

Despite economic recession, Wal-Mart stores did pretty well. In May 2009, the company announced an earning of $3 billion in the first quarter of the current fiscal year. Shares of the retail chain gained a dividend of 77 cents per share which is a penny more compared to its per-share-dividend of 2008. The overall revenue of the company decreased to $93.5 billion from 94.9 billion.

On June 5 2009, Wal-Mart is going to hold its annual stockholders meeting in Bud Walton Arena at the University of Arkansas. In the meeting, Wal-Mart administration is going to discuss six proposals submitted by its share holders. The proposals focus on providing equal opportunity to both men and women, performance based payment system, right to an advisory vote on executive compensation, preparing a semi-annual report on the company’s political contribution, ability to call special meetings and incentive payment in the form of stock options. Interestingly, Wal-Mart administration opposed the proposals. In the meeting, the share holders are also going to elect their new directors.

Related articles:

Phoenix Business Journal

GM and Chrysler LLC shades off dealers for the sake of survival

2009-06-03T14:17:00.000-07:00

On June 3, 2009, at a Senate Commerce Committee hearing executives of the GM and Chrysler LLC said that the elimination of their dealers is a critical step for their survival. The two major American automakers went bankrupt and declared to eliminate more than 2,300 dealerships. This means an estimated 100,000 people will lose their jobs which forced the government to look into the matter.

In his testimony, Frederick A. Henderson, interim CEO of GM, said that his company had no choice but to sacrifice for the sake of a “stronger and more viable GM.” In his testimony, Jim Press, Chrysler President, said that in order for a successful merger with Fiat SpA, the company required a “quick turnaround of its dealer network.”

However, Senator John Rockfeller, chairman of the panel, was not satisfied with their explanation. He said that the companies, who received government bailout money and not helping their local dealers and customers, were doing wrong.

This move by the two auto companies shows failure of the Obama administration to protect US jobs. However, the government has to admit that only giving away money would not change the financial condition of the companies. I think, along with stimulus packages, the present American government should work on reforming their overall business and corporate sector to survive in the future.

Related articles:

Reuters

Large budget deficit is a major threat to long term financial stability of the U.S.

2009-06-03T13:04:00.000-07:00

American government has offered a big stimulus package to revive the country’s economy but that stimulus will cause serious trouble in the long run. In his speech towards the House Budget Committee, Ben. S. Bernanke, Chairman, Federal Reserve, warned that the huge budget deficit poses a major threat to the country’s financial stability and policy makers have to start planning to restore “the fiscal balance.”

Yields on the ten year US Treasury bonds increased by 1 percentage points since the Federal Reserve announced to buy long term treasury bonds worth $300 billion. On June 2, 2009 the bonds yielded a return of 3.61% which came down to 3.54% on June 3, 2009. After Barack Obama became the President, the US government offered a stimulus package of $800 billion. It also tookover Fannie Mae and Freddie Mac which increased government spending.

House Majority Leader, Steny Hoyer also agreed with Bernanke and said that the house is going to pass a legislation to cut spending in one category. President Barack Obama promised to halve the budget deficit by the end of his term and even if he becomes successful, the government will continue with large deficit in future.

Related articles:

Bloomberg

US job loss will reach a new height

2009-06-03T09:18:00.000-07:00

Though America is showing signs of recovery from the economic recession, gloom is still hanging over the job market. Famous computing and business firm, Automatic Data Processing, Inc. released its latest report on June 3, 2009, which says that US employers cut 5,32,000 jobs in May 2009. The company also revised its estimate of April 2009 job cuts from 4,91,000 to 5,45,000. The major cause behind such high job cuts is that employers are still taking necessary cost cutting measures. Here are some of the high lights of the report:

· Large business organizations cut 100,000 jobs.

· Medium business cut 2,23,000 jobs.

· Small business cut 2,0,9000 jobs.

· The “service-producing” sector declined by 2,65,000 positions.

· The “goods-producing” sector cut 267,000 jobs.

The US Dept of Labor is going to release its latest job report on June 5, 2009 and as per “analyst average estimate” the report will also show a figure around 5,20,000, a 9.2% increase against April 8.9%. The worst news is, despite economic recovery, American companies will reduce another one million jobs in the rest of the current year and by 2010, the jobless rate of the U.S will hit the peak of 9.5%-10%. It will be the highest since September 1983.

Related articles:

Reuters

Business Journal

GM Bankruptcy: Toughest Challenge for Barack Obama

2009-06-01T13:55:00.000-07:00

The expected thing happened today- General Motors filed for bankruptcy. The company had no other option but to do so. I know that many people are wondering what went wrong for the company that has been for many years the largest employer in USA. The emergence of the company 101 years ago perhaps took place at the same time of America’s entrance in the global scene as the largest economy. The company has already received nearly $20 billion from the government and another $30 billion is supposed to come. In return, the US government will get roughly 60% of share. So, Obama government will be at the helm of this company for sometimes.

The plan is very simple- to cut cost, to shed off many workers, close some manufacturing plants and thus the company will become much smaller than it is now. Obama and his team think that a smaller but more efficient company will emerge and it will become profitable soon. If it happens then no problem. Obama will get all the praise and people will remember him as a great president for many years. However, many people are skeptical about the turn around of the fortune of this company and to be honest with you, I am one of them.

That is perhaps why, I feel some sympathy for President Obama. After all, economic recession did not start during his reign and the same goes for GM problems. He just inherited them from George Bush. It is a bit unfair that he Obama has to deal with both these two huge problems that have affected US economy in a very negative way. So, if the condition of GM worsens in the next few years then it may have serious political implication for his reelection bid in 2012. That is why, I feel that it is very important for Obama and his team to give this message to the people that the condition of General Motors is very bad and if it goes worse then they should not blamed unfairly. Instead, I would advise his PR team to focus on the fact that he did not try to avoid the issue. Rather, he accepted the challenge and tried to do something about it.

General Motors Getting Bankrupt: May be it is Good

2009-05-31T12:51:00.000-07:00

For quite some time, we have heard a lot of rumors about the problems of General Motors and other US automakers. According to a CNN report: General Motors on the brink. From the heading of the report written by Chris Isidore, you can easily understand what is going to happen. Many Americans considered GM to be an “icon of American manufacturing”. So, this icon is failing and falling very hard. If there is a take over from the US government then before that, GM needs to get some kind of bankruptcy protection from the court so that it can decrease many costs involving the stake holders. So, many workers would get much less money from the fallout and in the end, they are going to suffer a lot.

There is no doubt that many people will lose jobs in the coming months in GM. Also, the company will have to close down some factories to cut cost. Many retired workers will also suffer some kind of reduction in their pension. Many dealers and their workers (in dealer shops) will also suffer. So, it will send some kind of a shockwave to the US economy.

President Barack Obama will give a speech to the nation tomorrow and in it, he is expected to talk a lot about GM bankruptcy. He thinks that it is best for the company and for the US economy. I have similar idea too. I think that General Motors is in dire condition now. If the problem is not addressed at this moment then it can be too late to do something later. Do you agree with me?

AOL and Time Warner: No Longer Together

2009-05-28T12:28:00.000-07:00

It was perhaps the merger that created the biggest media buzz of last century or this century (depending on which way you think about the year 2000). The confirmation has come and it will take another few months for the demerger to complete.

I think that it will be good for both the companies to part way. AOL can become an independent company and would perhaps go to stock exchange and raise some capital and focus itself as a Internet based company. On the other hand, Time Warner will continue its business of big TV channels like CNN, film making activities, and printing magazines.

Now, it is perhaps the clear that this match was not made in heaven and it created a lot of problems in the last few years. In fact, they sold a number of small companies to competitors as they could not make profit. I still remember that before merger there was WCW wrestling and in 2001, it was sold to WWF for just $7 million.

So, it will be interesting for us to note what happens next to AOL. I guess that Time Warner will not suffer from this separation. AOL will face itself in to a challenging position because the Internet market is very crowded. However, it may be a blessing in disguise for AOL because then its decision makers will enjoy more freedom and would be able to actively scout for buying up start up companies that can become profitable in future.

Time

Economic Recession Will End in 2009: Most Economists are Wrong!

2009-05-27T12:20:00.000-07:00

In a survey, most economists have predicted that economic recession in USA will end in 2009. National Association for Business Economics carried out the survey and 74% of economists thought that things would become better for the US economy in the next quarter. Well, I was going through most of the reports in major websites like Bloomberg, AP, CNN etc and I did not find anything to be excited about that the recession would end in the US in 2009. The economists perhaps feel that the stimulus package and increasing consumer confidence would help to make things OK again.

First of all, 5 months of the year is almost gone. The trend of job loss has not vanished. Rather job loss figures look as solid as it can be. Even in the survey, many economists felt that people will not get back their jobs right away. In fact, what I feel that many big companies are fighting to remain profitable. Major automakers are on the verge of bankruptcy. The banking sector is not in good shape either. President Obama may have offered a stimulus package but there is no substantial plan for creating new jobs.

As a hobby economist, I feel that creating new jobs will be the biggest challenge. Recession will only finish when this problem can be addressed. On the other hand, US economy is closely related to European and Asian countries. There is no good news for those countries. In the last few days, we have seen one after another Japanese company big annual loss. We have also seen very bad condition of economies of Germany and Britain. The same thing goes for China. In a global world, US economy cannot remain safe in an island.

Well, I am a hobby economist. Still, I understand that most economists failed to predict about the start of the recession. So, I will not be surprised if their prediction is wrong again.

US Consumer Confidence Helps Asian Stock Markets

2009-05-27T05:28:00.000-07:00

Right now, among many consumers in America, there is a sense of optimism about the economy. They feel that the worst time is over and we will see better time in the coming months. Well, I cannot understand the logic behind this kind of optimism but the good news is that it is helping share markets around the world, mostly in Asian countries.

It started with new York stock exchange and when it was clear that consumer confidence is high compared to the last eight months, many investors in New York felt confident in spending more money and this resulted in good increase. The same thing happened in Asian markets.

It is good news but I’m not that much optimistic because the economic recession is it still very real and there is no possibility that it will end in 2009.

WSJ

Too Cheap is not Good for Consumers in the Long Run

2009-05-26T14:15:00.000-07:00

First of all, I want you to read this report of BBC: The far-away food factories. It has talked about the experience of a student from UK who recently visited a fish processing factory not as a tourist but as a worker. That factory supplies fish for some supermarkets in England and the Indonesian workers have to work very hard to meet the strict standards of England and EU in terms of hygiene and cleanliness. Very nice to see that the consumers get clean products and can enjoy their meals. After all, they pay for it and they are entitled to getting quality products.

There is nothing wrong or unethical about it. What is so bad is that the workers in the fish factory gets very low salary. Of course, Indonesia is not a rich country and you cannot expect that the workers will get good salary. However, the salary they get is really pathetic. Some of them even cannot live with their families. Some of them are too poor to make a bus ride to another part of the district to see their children. Still, they cannot or wont leave the jobs because this is the best deal they have got. If they did not have this job then life would have become even worse. The factory owner is a bit helpless too. May be he is getting some healthy amount of profit but in the end of the day, he cannot bargain hard with the British supermarkets because then the supermarkets would go for another trader or producer.

The consumers in England are very happy to get fish in an affordable price. So, in the end of the day, everyone is happy. However, on a second thought, we have to remember that it is inhuman that some people cannot even see their children for many days just because you want to have cheap fish. From ethical point of view, this is bad and even immoral. However, let us take a look from the business of point of view. First of all, as a consumer, you will get habit to cheap products. Secondly, the consumers of the rich countries have to work and earn money. They have to produce some goods and services that people of the poor countries will have to buy. However, if the consumers of rich countries destroy this balance then the workers of poor countries will never have any real purchasing power.

I feel that more than the credit crunches in USA, this kind of bad consumerism caused the global recession. Of course, I am a hobby economist and you do not need to take my view seriously. In China and India, still more than 1.5 billion people do not have a car. On the other hand, in USA, auto makers like General Motors are on the verge of getting bankrupt. They are getting bankrupt because they cannot sell their products. If they could sell a car to just even 10% of that 1.5 billion people of India and China then they would have much better condition right now.

Credit Card Reform: Is it Addressing Just one Side of the Coin?

2009-05-23T12:10:00.000-07:00

Sen. Chris Dodd must be a very happy man because he could finally get President Obama to make credit card reform a law. Mr. Dodd has fought bravely for this law and he had to be against lobby groups who are very active to preserve the interests of banks and credit card companies. In the new law, the credit card companies will have to maintain some restrictions and will surely not be able to charge like the past. Thus, it will save a lot of money for the ordinary people. Now, Mr. Dodd wants more and he will try to make life easier for the consumers.

What I feel is that this law is just addressing one side of the coin. Of course, the companies have to lower their rates and make less profit. Many people in USA get bankrupts every year because of spending too much money on credit cards. So, there should have been some kind of reforms over due long ago. Mr. Dodd should get a lot of applause for his heroic role in this regard. However, I think that we all are forgetting the other side of the coin. Millions of Americans take credit card for granted. They think that it is near to free and they do not need to pay it back. This kind of mentality leads to free spending and as a result, many families get broke and the companies in order to make up the loss charge more on the customers who pay regularly.

I wonder what Obama administration would do about the second side of the coin. Will they make some new rules that people who cannot afford to pay back money should not be issues new cards. Or even better, some people should not be given credit cars in the first place? I know that this is radical idea and it is not a popular idea. However, what I believe is that Obama should try to address both sides of the coin. Otherwise, it can lead to a new kind of economic disaster after a few years.

Miami Herald

Baltimore Sun

Unemployment Rate: Is USA becoming a Third World Country?

2009-05-22T11:41:00.000-07:00

I admit that the title I gave the title to create some excitement in the mind of my readers but unemployment rate of 11% should not be in a state like California. After all, it is among the richest states in America. Secondly, it has both Silicon Valley and Hollywood and a very flourishing agriculture sector. So, what is going wrong? In any case, 11% unemployment is perhaps too high for any rich country. Condition of some other US states is not good either.

The national unemployment rate for USA in April was around 9% and it is not good either. Of course, in some third world countries this rate can be almost 25% or even 30%. So, USA is not becoming a third world country. However, the reality is that if the US economy has to go out of the economic recession then more jobs have to be created first.

Stephanie Flanders about UK Economy and General Election

2009-05-21T12:46:00.000-07:00

Stephanie Flanders is the economics editor of BBC. I think that it was in 1988 March or April that I started to listen to BBC World Service Radio and I still have to the habit of considering BBC as my number one source for news. The only thing that has changed is that at that time, I used to listen to radio but I watch now the same thing perhaps in TV. Stephanie Flanders has written an excellent entry in her blog: Going to the country.

She has mainly discussed about the condition of the British economy and its impact on the upcoming general election. A parliament election is perhaps due and the announcement can come any day in the next few months. The opposition Conservative Party wants an immediate election because now they are in a very strong position in the opinion polls.

Prime Minister Gordon Brown is in desperate condition in every way. On the one hand, his government is facing a lot of criticism over too much expenses by some MPs. Then, the condition of the economy is becoming from bad to worse. Almost every week, the Britons hear some kind of negative news about their economy.

Poor Mr. Brown. He is at the wrong time in wrong job. He contributed immensely behind the success of Tony Blair’s government. Now, because of economic recession, he is helpless about the economy.

California: Tax Increase, Bankruptcy or Bailout?

2009-05-21T11:57:00.000-07:00

California is the largest state of USA. It is perhaps the richest too. The famous Silicon Valley is in this state. Don’t forget Hollywood too. These two bring generate a lot of money and also create many jobs for the people. California is also very rich in agriculture. So, it is very surprising to me to find that the state government is in the brink of getting bankrupt. The people recently voted about tax increase and they rejected the plan of Governor Arnold Schwarzenegger’s plan. Arnold Schwarzenegger put this plan to get some more revenue so that his state government could fight against the huge budget deficit.

California is the home to companies to like Intel, Google and Yahoo. So, you can easily understand that it has some of the richest people and companies. It seems to me that President Obama will have to think of another bailout to save this state. Otherwise, if California suffers bankruptcy then it will bring disaster for the overall US economy.

Part of the problem is that Arnold Schwarzenegger is from the Republican Party but the legislature assembly of the state is now run by the democrats. So, there is bipartisan conflict and it is not helping anyone.

Healthcare Costs Going Up even During Economic Recession

2009-05-21T10:46:00.000-07:00

In the time of recession, people are struggling and trying to just maintain a normal life. Seeing the job loss data does not make anyone happy or does not bring any hope or assurance in the mind of ordinary people. You have perhaps already noticed that the price of oil has decreased substantially in the last one year not only in the US but also in whole world. So, the price of many things has decreased. However, the only thing that is still rising is the cost of healthcare in America. Because of high cost, now, almost 50 million Americans do not have health insurance.

Obama government has taken this issue seriously and they could get the industry on board too. However, there is no sign of hope because there is danger that unless something substantial and effectives steps are taken, the number of uninsured people in this sector may increase to nearly 65 million within 10 years. What is very confusing to me is that during time of economic recession how healthcare cost go up. It shows that there is some problem in this sector and US government needs to address it seriously. A new bill is on the card from the Democratic party but it will not receive support from the industry and the Republicans.

Reuters

Oil Price More than $60: Is it good for the Recession?

2009-05-20T12:57:00.000-07:00

When economic recession started, at that time most people were worried about the high price of oil which reached to $150 a barrel. Then came the crash and the price fell below even $40. It did not make the oil producing countries very happy but the rest of the world was excited and had a sigh of relief. Now, many people have got some kind of expectation that the most part of the economic recession is over and they can have better future. Perhaps, because of the expectation, the price of oil has for the first time gone up to more than $60.00 in new York in many months.

I do not think that it will be good for the U.S. economy because yet, the sign of recovery is not very strong and at the same time, we should not forget that many people are still losing jobs every month. At this moment, the price of oil should not become a very high or else it can bring disaster for the global economy because most of the countries are still fighting against the economic crisis. For example, earlier today, we noticed that the Japanese economy is suffering a lot.

Economic Recession: 10 Lessons for American People to Learn

2009-05-19T12:48:00.000-07:00

USA is in the midst of economic recession and there is no debate about it. It is the worst economic crisis after the great depression of 1930s. It is now almost certain that the US economy will not be out of the crisis in 2009. 2010 may become a better year but still, there is a long way to go. Large companies are suffering and millions of people are also suffering. Every month, nearly half million jobs got lost for the last few months. This has become a monthly ritual for the people to read about job losses of the previous month.

I was thinking about the lessons that American people can learn from the economic recession and here, I have made a list of 10 possible lessons.

1. Recession is real and can come again

The great depression started in 1929 and naturally, most people have not seen that with their own eyes. So, the idea may have come to many people that USA is the richest country on earth and economic recession would not touch its economy. The year 2008 perhaps taught these kind of people a crushing lesson that it can happen anytime to any country.

2. Living with Family has some advantages

Most people in America do not live to live with their family. In fact, this has some advantages. It ensures personal freedom and can keep you out of many family related problems and quarrels. However, I feel that living with or next to other family members have some advantages. The first advantage that you can get is that you can decrease your expense. If you live with your parents then surely, it will decrease many of your expenses. Secondly, in times of trouble and recession, you can get mental support from your family. In fact, in most Asian countries, family members and relatives try to help each other when someone loses his or her job.

3. Spirituality can help you to pass tough condition

This is obviously my opinion. I feel that in American society, there is a lack of spiritualism. People have really become materialistic. There is nothing wrong in it but the main problem is that when you give too much importance to your job and money then when you lose your job and you see that the economic condition is bad then surely, you will lose your mental strength. By spirituality, I am not just indicating religion. Instead, you can be an atheist but you can have some kind of idealism and passion for something. Life should be more than earning money and spending it.

4. When USA is in trouble then the rest of the world too. Don’t forget them

This is a very thing for the global economy. After recession hit America, naturally, the people of the country became worried about their future and it caused a big problem to those countries who export to the US. For example, India, China and Japan all of them suffered as their export orders decreased from Europe and America. Many people in China have lost their jobs and have returned to their villages after their factories were shut down. Some workers in Indian diamond industry have committed suicide after losing jobs. Try to think about them and then you will see that at least you are much luckier than them.

5. Save Money for the future

Many people think that they should try to increase their money all the time. As a result, they enter into risky places like Forex Market or Stock Exchange. Many of them do not have any idea about the risks involved with these markets and often lose money just like gambling. This is very bad and instead of risking their money, they can keep it in bank and then nothing will happen to it. So, do not take unnecessary risks especially in the markets that you do not have idea about.

6. Don’t become addicted to your credit card

I do not need to emphasize this matter because it has already become a national problem for USA. It happens from early teenage life for many people. They feel that whatever they like they should buy with their credit cards and then they can pay back. Several million people have lost jobs in the last one year and many of them are now finding it difficult to manage their credit card related credits and expenses. The credit card companies are getting smarter and they are trying to find a way that people cannot declare themselves bankrupt after failing to repay the loans of their credit cards. Understanding the gravity of the situation, US Senate just passed a bill that would sharply curtail credit card issuers' ability to raise interest rates and charge fees.

7. Travel to a poor country and be satisfied and spend less money

You do not need to travel to Africa or Asia. Instead, just visit some poor places of Mexico or even Haiti. Then you will notice that these people manage their life by spending just 10% of what you do or even sometimes less. Yet, they are happy and satisfied. You do not need to focus on the poorest people of those countries. Instead, take a look at their middle class people. They also spend much less money then you. Yet, they are becoming educated and living a decent life.

8. In recession, government cares only for the big companies not poor individuals

This is perhaps the biggest lesson to learn for American people. Obama announced a huge stimulus package, G20 countries also came up with $1 trillion package to create some life in the economies of those countries. However, all the money were for big companies and industries not for individuals. $1 billion dollar would happily head to save a bank but not $10,000 to save an individual. So, remember that you are on your own.

9. Don’t become crazy for buying a house

Credit crunch that came from the real estate sector pulled the trigger for the economic recession. I cannot understand the craziness of American people for buying a house by taking huge amount of loan from bank.

10. Invest on Education and Improving your Skill

US companies are outsourcing jobs on a regular basis to remain profitable. This may bring more profit for the companies but for the individuals, it is just disaster. I read a report in Yahoo: No Outsourcing Here: How to Train for the Best American Jobs. All these jobs need you be highly educated and highly skilled.

As the title of this blog suggests, I am just s hobby economist. I have written this entry for providing some food for thought. If you do not agree with me or feel that I have got the thing wrong then let me know your idea in the comment section.

Healthcare is less Important than Global Warming

2009-05-18T14:13:00.000-07:00

One of the perhaps major problem about US economy is that misplaced attention and focus are given in some basic things. Many people, business leaders and political leaders give a lot of importance to healthcare issues. Still millions of people in the country cannot afford to have insurance. Obama has got the private sector with him but I do not think that any significant change will happen in this regard in the next 4 years. I have this kind of idea because the decision makers do not want to accept some real facts. Just look at the fast food and junk food industries. What benefit does a soft drink bring? What benefit does a burgher or pizza bring?

On the other hand, global warming is something that is really affecting the world but many people in the country want to close their eyes. They forget that being healthy means living in a good and clean environment. If the environment gets polluted then it will bring hazard for every American and the financial cost will be huge. So, they must focus on the environment more. If they want to avoid this problem then in future it will become bigger and will bring disaster. More than everything else, environment is directly related to health.

So, instead of arguing about the global warming and climate change, the decision makers should sit to find to minimize the negative impacts.

Jeff Sachs about a New Global Currency

2009-05-17T13:49:00.000-07:00

Whether you like it or not, global economy is too much tied to the US currency dollar. Even those countries that do not have good relationship with America, the people there use dollar a lot. So, when the US economy is weak or is in a problem then it affects everyone badly because of the close relationship and involvement with the currency. So, may be it is time that all of us think seriously about the emergence of a new global currency.

I found an interesting article of Jeff Sachs in Economist’s View (Mark Thoma’s blog). The idea is interesting. The problem is that most people are afraid of something in any field. In the case of economics, it is even more problematic because if any crisis happens then it can lead to disaster. Anyway, I feel that current crisis is itself a big disaster and that is why, everyone should think of a global currency.

Technorati Claim for this Blog

2009-05-15T07:04:00.000-07:00

I know that until now, there has been no reader to this blog. So, it is perhaps the best time to claim the blog in Technorati. I am just supposed to put a code which I am doing here in the following:

Technorati Profile

So, I hope this is it.

Can Health Care industry Save $2 Trillion for Obama?

2009-05-11T12:09:00.000-07:00

It is big news now in USA that health care industry is going to join US government’s effort to ensure a better form by saving a lot of money. Barack Obama has got the support of almost all the stakeholders of this industry and they have informed him with collective effort, in the next 10 years, $2 trillion will be saved. This news will surely make many people in USA very happy. America may be the richest country on earth but the reality is that nearly 50 million people still do not have health insurance.

We have to wait for the next few days about the detailed plan. It is still not clear how this huge amount of money will be saved. The basic idea is cutting cost and using the resources more efficiently. It is still not clear that what extra ordinary things will be done now that could not be done until now by the same industry.

British Prime Minister Gordon Brown Criticized for £150 plumbing work

2009-05-11T11:46:00.000-07:00

These days, some Parliament members in England from both the ruling and opposition parties are in an embarrassing situation because a recent news report by a newspaper informed the people that some MPs were wasting a lot of money at the expense of the taxpayers’ money. This matter has caused a lot of controversy and anger among ordinary people. If you want to know about the expenses that have caused anger among people then you should visit this link of BBC: MPs' expenses in detail. About the expense claim off Prime Minister Gordon Brown it is written:

Claim: Gordon Brown also claimed twice for the same plumbing work within six months of each other.

Response: The House of Commons Fees Office said the mistake had been inadvertent and apologised for having not spotted it. Gordon Brown is understood to have repaid the sum involved - believed to be £150.

£150 only? I wonder what the lobbyists in the UK do!

What can US Banks learn from HSBC?

2009-05-11T06:19:00.000-07:00

While most American banks are under a lot of financial stress and need a lot of tax payers money to survive. This matter is causing a lot of resentment and anger among ordinary people in USA. On the other hand, HSBC is the leading bank of England and like most banks they suffered in the last quarter of 2008. Now, it seems that HSBC has passed the worst time and the first quarter of 2009 brought better condition for the bank compared to one year ago. It has not yet asked for any kind of support from the British government. It also shows that it has good financial health at this moment.

I wonder what American banks can learn from HSBC? Well, I feel that the most important thing that American banks can learn from HSBC is that Asia is an important region for banking industry. HSBC has very strong presence in most Asian countries and the main growth of the bank is coming from Asia.

"Asia has proven resilient, with China and India continuing to grow robustly, particularly China where stimulus initiatives have clearly had a direct domestic impact,” these words came from HSBC Group Chairman Stephen Green.

I would have been happy if these words came from the Chairman of any American bank.

Health Care: Paul Krugman, Government Bureaucrats and Private Sector

2009-05-11T01:24:00.000-07:00

New York Times has an excellent Op-ed by the famous economist Paul Krugman with the title: Harry, Louise and Barack. He has talked about the new proposals of the private industry players about healthcare system in USA. It is needless to say that healthcare is one of the top issues in the country today. President Barack Obama promised that he would carry out some major changes in this sector and he would make things easier for the American ordinary people to have better medical facilities paying less. Of course, it sounds attractive but providing it is a huge challenge for any government.

Paul Krugman has discussed all sides of the coin in the column. He talked about some mistrust that he has about the industry players. He has mentioned that in the past, these big companies created obstacle for people to get better insurance deals. So, he is surprised that now, these companies are trying to do the opposite thing. Naturally, some decision makers are excited and happy that they will not face any big difficulty from the industry in implementing the vision of President Obama about healthcare reforms. Mr. Krugman has also expressed his satisfaction over the matter but at the same time, he has urged the government bureaucrats on one thing:

I would strongly urge the Obama administration to hang tough in the bargaining ahead. In particular, AHIP will surely try to use the good will created by its stance on cost control to kill an important part of health reform: giving Americans the choice of buying into a public insurance plan as an alternative to private insurers. The administration should not give in on this point.

He is right. Obama government should never agree to any proposal that would limit the American people about their medical options.

Welcome to Hobby Economist Blog

2009-05-10T12:49:00.000-07:00

All my life, I studied in humanities and Economics was my most favorite subject in high school and college. When the time of studying in University came, I had the opportunity to any subject in my university but I selected English Literature and Language instead of Economics. Well, I live in a poor country and my parents felt (and I agreed) that English has better prospect than any other subject in the humanities field in terms of career prospect. There was a second reason too. I wanted to be a journalist or a writer and English seemed to be a better choice. I even wanted to study journalism and English seemed to the best option for my future.

I am happy that I decided to study English literature because it gave a career boost to someone like me who comes from a lower middle class background. On the other hand, I have got some skill in this language. This skill of English has helped me a lot to be passionate about knowledge and information. The reality is that you cannot find enough good quality books on any subject in any language in South Asia from where I come from. So, studying English in university level has given me a good base for the future.

I have been professionally blogging for more than 3 years and I always tried to write something related to South Asian Business. I still have blog about this topic and the url is: http://www.southasiablog.com

A couple of my entries got linked by two leading blogs on Economics: Mariginal Revolution and Economist’s View. I felt very happy for this matter and my interest and passion grew about Economics. That is why; I decided to open this blog.

You may be surprised with the name of this blog: Hobby Economist. Well, I liked the name because it correctly depicts my condition. On the one hand, I like to become some day a real economist and until that time, it is just my hobby.

What will be featured in this blog? I like to mainly write about the US economy. I have to admit that I am not an expert on this field. However, I know that I am a keen observer of US economy and I have tried to remain updates about US economy for the last 2 decades. Of course, being updated means reading reports and columns on newspapers or listening about US economy in BBC Radio, BBC World Television Channel and CNN- nothing academic; rather pure hobby.

In our time, US economy is totally related to the global economy. You cannot separate them. Whenever, you want to discuss about European economy or Asian economy, sooner or later you will find the relationship with America.

I like to write for the ordinary readers. If you are looking for some serious discussion or observation then this blog may not satisfy you. Still, you are most welcome here because at the end of the day, economics is one of the most important things that govern our personal and social life.