A McKinsey Quarterly report on Globalisation’s Critical Imbalances.

Prepare for large currency shifts between developed and rapid developing countries. If we are lucky these will be gradual, but in the currency game shifts can be sudden and dramatic, the so-called judgment days.

However while I do see a shift in currency is required, I would not bet long term against the US economy – it’s proven time and time again how resilient and powerful it is. That 20% un/underemployment can also be seen as spare capacity in the engine. The USA does have an issue with the lower quartile of population though – generally under-educated and stuck in a horrible poverty cycle. It remains to be seen whether they can turn that into competition for China et al.

This chart from the report showing food commodity prices shows that dairy prices have risen a lot from their base – but that they have plenty of room to either grow or contract versus historical norms. Mostly contract sadly.

The project’s survey: “Climate Change on the the American Mind” is a lengthy and ponderous read, and is so queued in my reading list. It contained this graphic, which has the same (and a bit more) information as the inverted triangle above – It’s a chart that any consultant would love, and it is difficult to read and, well, boring.

The learning here is that each chart should deliver one message, and to focus the chart on that message alone. It’s too easy to get wrapped up in presenting everything sometimes, when taking out the key facts has much higher impact.

This chart is has great information  – however it really could have been drawn better. It says that 69% of Americans believe in Global Warming now, but more importantly that only 10% deny (to one extent or another) that it is happening and only 3% are extremely sure it is not happening.

(*Incidentally the FES school was until pretty recently called just the Forestry school. Also I did one course there so anything I say about them will clearly be biased. )

The Center’s Internet and Deomcracy blog has a recent post on “How to blog anonymously“, and explains why anonymous speech is important:

Like 18th century phampleteers (or even the writers of the Federalist papers), anonymous bloggers are empowered by their aliases to challenge taboos, censors and government power.

…The internet is the last bulwark against totalitarian control because of its fluid and democratic character. That is why anonymous blogging is so important. Difficult to trace or gag, it is the kind of speech most likely to impact an increasingly interconnected and web-dependent world.

However – it’s a dangerous game this blogging:

Of course, be extremely careful. Use these tools at your discretion. Reporters Without Borders has a comprehensive list of jailed cyber-dissidents.

The GlobalVoices site has the guide to blogging anonymously,which comes with a chilling caevet:

These directions do nothing to prevent you from being linked through other technical means, like keystroke logging (the installation of a program on your computer to record your keystrokes) or traditional surveillance (watching the screen of your computer using a camera or telescope). The truth is, most people get linked to their writing through non-technical means: they write something that leaves clues to their identity, or they share their identity with someone who turns out not to be trustworthy. I can’t help you on those fronts except to tell you to be careful and smart.

The bold part is important. The surveillance measures that are increasingly coming in are not that important to the either “criminals” or “freedom fighters”. Decent police work is much more effective at finding out about bad things happening, which is why societies should make sure their police, court systems and bureaucracies are corruption free and focused on the highest risks. New Zealand always scores very highly on these stakes.

Anyway – to cut a long story short, if you don’t want the ISP’s in NZ (or anywhere) to be able to see what you are doing, then use Tor, proxy servers, gmail and wordpress, writing your posts offline in say notepad and secure erasing everything along the way. You may not be really avoiding any real threat to your personal freedom in New Zealand, but you will be helping people that have real issues.

It’s a draconian move to go undercover, but there are some topics and writers which lend themselves to being anonymous. Consider though the words of GlobalVoices:

A final thought on anonymity: If you don’t really need to be anonymous, don’t be. If your name is associated with your words, people are likely to take your words seriously. But some people are going to need to be anonymous, and that’s why this guide exists. Just please don’t use these techniques unless you really need to.

There is a piece on the February housing statistics, which rose dramatically versus January, although the median price stayed down, and the number of days to sell was a record 62. Alex also looked at the REINZ commentaries over the last year, and to their credit REINZ has pretty much got it right each time.

So let’s look at the total year on year dollar transactions for the real estate market over the last year and a bit:(Red is older, green most recent)

It’s been a pretty steady decline from October 2007, though February was an excellent month this year.

Let’s look at what is near and dear to the industry – estimated commissions. I’ve just used 3.5% as a wild guess – what’s important are the orders of magnitude. The fives months between September 08 and January 09 saw $182 million more less in commissions for the industry than the corresponding period a year earlier. $182 million pays for a lot of agents, and a lot of agents’ flash cars and investment properties.

Let’s also smooth out the effect of a lousy January and a great February – and apply the average of the two to them both. You can see that we are not really seeing a resurgence.

Finally, as The Bank Manager notes in the comments on interest.co.nz, the February sales in 2009 were a huge drop from previous years. This chart is telling:

Things are really not good for the real estate industry, nor for homeowners with large mortgages and uncertain jobs. Nice February statistics are a start, but is it a bounce or a dead cat bounce?

<update. Alistair from realestate.co.nz has introduced an excellent chart:

This is really scary – it shows we still have quite a way to fall. Brace yourselves – and remember that these things tend to overshoot.>

Stanford International Bank Ltd. of Antigua recently failed to provide some $16 million in funding to a small Florida telecommunications firm, while a small Alabama health-care firm said it was unable to complete a roughly $62 million merger after funding fell through. 

….The disclosures raise new questions about the activities of Stanford International Bank, part of a sprawling financial-services network controlled by Texas businessman R. Allen Stanford. As reported, the Federal Bureau of Investigation and securities regulators are examining the bank’s marketing of high-interest certificates of deposits through affiliates in Texas and elsewhere.

It doesn’t seem totally bad, but R Allen Stanford is a huge support of cricket in the West Indies, and it would be really sad to see that go away.

Luxembourg is only 80 x 30 kms, and while boasting the highest GDP per capita, the owners of those cars often live next door in Germany, France or Belgium – saving taxes. It’s essentially a statistical anomaly, so let’s leave it aside. 

Number two is Iceland, completely isolated like New Zealand, and with a small population. Perhaps there is something to living in rocky countries that are under-populated and geographically isolated?

Well no – next in the list is Italy, about the same size as New Zealand and with 54 million or so more people, but a similar topography.

So why?

• Commenters said that there is an alternative source of statistics, but that doesn’t explain why NZ is high on this list
• Commenters also said that for the USA SUVs are classified as “trucks” and not “cars” for the USA. Adding them back raises the USA up to first place. High GDP and low vehicle prices gets them there. 
• New Zealand has relatively poor infrastructure and is very rural and hilly, and so we more often need cars for commuting or for shopping than higher density and more urban places. Auckland is spread out, Wellington is all hills and so it is tough to walk or cycle. Christchurch gets a pass here.
• But most of all it has to be the lack of trade barriers.

New Zealand stands almost alone in that regard, and it means we avoid the equivalent of a large import tax that everyone else pays. 

In NZ, once the vehicle is inspected by customs and agricultural officials you drive the vehicle to a nearby testing station, get a warrant of fitness, pay your registration and GST and go. It’s simple, I’ve done it and it took about 20-30 minutes.

If you want to import a vehicle into, say, the USA or EU, then you need to get it approved by the authorities as being safe, conforming to standards and so forth. You also need to pay a confusing array of taxes, get it tested, registered for your jurisdiction and so on. I’ve tried to do this to the USA, and utterly failed at any price.

These rules and regulations are present in every major market, and yet seem to be different in each. As a result the cost of compliance is very high, and so imported cars are at a serious disadvantage to domestically produced cars.

And that’s the point – protection of a domestic car industry. Sadly that “protection” seems to have a negative impact – if higher car ownership numbers results from freer markets, then wouldn’t it be better for your domestic producers of all products for you to free your own market?  It’s a bit simplistic, but basic economics tells us that the more efficient the market is the better the result. It’s often contrary to political concerns, although those jobs in Detroit may have been kept if the US car companies had been properly exposed to the rest of the world’s cars earlier.

Iceland, Luxembourg and New Zealand have no domestic industry to protect, and Iceland and Luxembourg are both part of the EFTA – and so you can easily import or register  a car from anywhere else in the European free trade area. Meanwhile it is expensive to export your car from New Zealand (no-one will take them) and from Iceland (high used car sales taxes). 

So what would the impact be of global standardization of car certification? At the very least allowing people to import small volumes of cars easily would help identify gaps in the market. Better would be bilateral agreements between markets – accepting that the regulations in each jurisdiction are acceptable for the other and increasing sales of each other’s cars in each country. A Nobel prize was won by pointing this out – the EU cars are in demand in the USA and vice versa. 

Those USA SUVs are a nice case study. They were wildly popular because they were and still  are cheap, and they are cheap because they are regulated and taxed as light trucks and not cars. This does mean poorer safety standards, which is very bad, and yet people flocked to buy them as they perceived more car for the dollar.

And therein lies the rub. The health and safety standards in Europe differ from the safety standards in the USA and, in then there is California. Global manufacturers can adapt to each country, and create vehicles that conform to more than one standard. However a great start would be a single  standard between the EU, USA, Japan and Korea. Going forward that standard could be a rating (e.g. A,B,C on safety, 1,2,3 on environment), and given jurisdictions could select which rating they require or compliance.

The idea of the Ferrit site

So while there was a space, the proposed way to address that space was flawed. The  problem was that the proffered solution didn’t offer anything of value to anybody.  The medium to large companies that Telecom identified had not moved their commerce online were not looking for a giant website to aggregate demand. They needed to open their own ecommerce websites backed up by their own fulfilment processes.

The problem was that for an aggregator site like Ferrit to work properly the retailers had to get their own websites in order, and once they had them in order there was no need for Ferrit.

To provide a feed of products they needed to be able to pass on SKU’s, details, photos and prices, along (importantly) inventory numbers through to Ferrit. They also needed some way to accept the sale online and fulfil the order. Once companies had all of this on place then building their own site was a formality. They could even use one of the many off the shelf and open source (read free)  eCommerce website solutions out there. Wellington’s Silverstripe offers a complete website CMS including ecommerce, while OSCommerce is a dedicated open source solution. Both are free.

The business model was fundamentally flawed. It relied on taking a commission from retailers for directing traffic to their sites. A large commission. The flaw was that the retailers can simply set up their own sites and buyers can easily find them using Google. (Indeed Ferrit’s usability issues made it harder rather than easier to buy things from particular stores.)

Finally there was the Telecom question. Why would any supplier want Telecom to be their ecommerce route to the internet? What compounds that question is the presence of Gen-i within Telecom’s ranks, so a company already doing this sort of work for clients  was ignored within Telecom.

The Weaknesses of the implemented Ferrit site
The weaknesses were manifold, and summarised threefold: Poor technology, poor usability, poor business model. Overall it was a model of what not to do.

The technology was apparently based on an off the shelf product that was substantially changed by the outsourced programming team. The impact of this is threefold: It’s expensive to purchase a system in this way, the changes to the system probably mean that upgrading is difficult to impossible and the time and costs taken to make changes are prohibitive. The slow and expensive development of the site are external evidence of this occurring.

Sadly there were and are plenty of alternative ways to develop a site like Ferrit,  ranging from open source solutions to simply starting from scratch using modern building blocks and tools.

The poor usability of Ferrit was legendary in the New Zealand web industry. It was so bad that it turned visitors away, and though it slowly improved over time the end result was still basically unusable. To dissect just how poor the usability was is an exercise best left to the individual, and I would rather point to Trade Me, Google and Apple sites to see just what a great website can be.

Meanwhile the execution was so poor that the information provided by Ferrit (price, availability) was often incorrect, leading to a collapse of any consumer trust in the site.

That’s really sad. I was lucky enough to consult to the Kwinana Nickel Refinery as well as across  Stainless Steel Materials, and this will come hard. Don’t blame the talented people there however, it’s just that the industry is simply producing too much Nickel versus demand, and unless the supply is curtailed it spells doom for everybody.

The Ravensthorpe plant uses laterite based Nickel, which is in a more common yet much harder to process form. The plant creates MHP (mixed nickel cobalt hydroxide product), a high Nickel percentage green goop, and that is shipped in sealed containers to the Yabulu plant in Townsville. It uses a relatively new technology and was still ramping up, yet it seems just cannot make nickel cheaply enough versus the market prices.

The Yabulu plant was expanded as part of the overall Ravensthorpe capital project, with the MHP mixing in with the other sources of Nickel. The Yabulu plant, like any refinery, is a 24/7 operation, and reducing volume probably isn’t going to change the number of jobs much, but it will affect the volume of other inputs. Interestingly the BHP Billiton press release says that they will “complete a future options study” for Yabulu. This means one of three things – ramping it down, keeping it at old, pre-Ravensthorpe levels, or finding an aternative supply of Nickel. My take is that the answer will almost entirely be dictated by what happens to the Nickel price in the meantime, as well, of course,  on how well the team operates the plant.

The Ravensthorpe affected ex-BHP Billiton employees and contractors will be facing a very uncertain market – and there are 800 employees and 1000 contractors across Ravi as well as Yabulu and, crucially, head office in Perth. There are a lot of very talented people inside Nickel West and SSM and my heart goes out to them in these uncertain times.

Meanwhile mining at the the Mount Keith Operation, which is an impressively enormous hole in the ground in Western Australia, is being scaled back. They will slow mining and produce concentrate from existing stockpiles. That saves 100 employee and 200 contractor jobs in a market where truck drivers have been seeing incomes of $120,000 per year. That sort of  income is now completely unsustainable, and we can expect to see a huge follow-on effect in Western Australia.

The Mt Keith sourced ore is concentrated and then smelted in Kalgoorlie and refined at Kwinana, South of Perth. With the amount of concentrate staying the same we can expect that Kalgoorlie Nickel smelter and Kwinana Nickel Refinery will continue to produce at maximum rates, as the more you make the cheaper the unit cost. We can expect those sites to relentlessly continue to reduce unit costs.

The Impact
Overall the people that will go will more likely be the newer migrants to Western Australia. The mining industry has been fueling a serious boom, with housing, coffee and food prices reflecting a reality that simply wasn’t long term. I see this as yet another potential catalyst for a big popping noise to hit the region.

There are tens of thousands of New Zealanders in WA, and many of them are in the sort of occupations that will be the first to go, Where, oh where will they go to next?
Perhaps to those $22 per hour cleaning jobs in tourist towns like Broome, which employers have been struggling to fill. Those jobs won’t have to pay as much of course, as tourism demand will also dip and supply of employees will rise.

The knock on effects are obvious, and the results could be disastrous. It’s really not a good time to own a house in the Perth market – and I am glad I don’t. However as Nickel prices rise then Ravensthorpe will be able to ramp up again and Perth will come backas well. It may take a year, or many years.

Tiwai workers will be safe

Actually those 14,000 are from capital projects that Rio Tinto is extracting itself from, with most (7,500) of them contractors. Steady state plants like Tiwai that don’t have immediate expansion plans should be ok. I’m assuming that they don’t have expansion plans as any expansion would need more electricity, which we cannot provide.

Rio may ask Tiwai for some reductions, but it’s really hard to reduce staff in an aluminium refinery – they require people to do certain tasks and it’s bad practice to skimp on that. I’d be really surprised if they were that inefficient and bloated that losing staff was worthwhile. If they were, then the staff that would go would be in the management ranks, not the people on the floor. It’s especially hard to see much headcount reduction given that Tiwai was making some of the purest Aluminium in the world in recent years, though I am not sure how they are going these days. Finally it’s contractors first when these things happen. 

Tiwai is a 24/7 operation – and you cannot shut down for a periods as the molten alumina and aluminium in the pots will freeze. That’s not pleasant – I’ve seen a kilometer long potline freeze in South Africa and it is a long and expensive task to recover from that. So the plant will stay running, and (almost) everyone will stay. 

One option could be a sale of the plant, but the new owners wouldn’t make material changes in the operation, or in the tax payments to the NZ Government.

WA Kiwis

But this is big news for the thousands of Kiwis that have emigrated to Western Australia to chase the big bucks. Less capital projects means less scaffolding (notoriously scaffolders are often Kiwis and often cowboys), less boilermaking, building, drilling, mining, driving and engineering. Above all it means that the crazy money being offered in WA will now slowly or quickly go away. That will mean many of those Kiwis will choose to come back home, adding to any unemployment woes we have. 

BHP Billiton looks on

One of the reasons that BHP Billiton withdrew from the offer to buy Rio is apparently the assumption that Rio will now have to sell off assets to survive. Looks like they were smart in that assumption

“You are looking at a nano-cosm of a foreshadow of the future of the world’s
geopolitical risk.

That’s how a friend of mine characterizes the global situation right now. And I though I was bearish.

Oh – he works for the World Bank. (His opinions are his own however)