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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: Facebook’s move on search, text and Skype. The UK’s great wall against China. Germany’s gold haul. Germany’s bank bail-out. His master’s voice

Facebook’s move on search, text and Skype

As ever, the last big idea from Facebook has drawn no shortage of criticism. Although, actually, there have been lots of new ideas from Facebook of late, and they are all pretty interesting. The criticisms are too easy to make. Facebook’s opportunity is harder to explain, but that doesn’t mean it’s not there.

At face value, having a search engine that can tell you what your friends like seems a bit daft. “I have an alternative approach, if I want to know what books or restaurants my friends enjoy, I  ring them up and ask them” – that’s the gist of the criticism made across the blogosphere. The argument is quite seductive, but almost certainly wrong. The kids love Facebook, and that is what matters. Other say Facebook is a fad. Well maybe it is. It is impossible to say one way or the other, but frankly many of the criticisms do sound a little bit fuddy duddyish. And if you are a Facebook cynic that is not meant to be rude to you – the author has held similar views. It’s a trap we all fall into once we pass a certain age.

Facebook’s new search engine is not much use if you have half a dozen friends. But many users have thousands of so-called friends. They are not proper friends of course, but that’s not the point. Don’t criticise Facebook because it has abused the word friend. It is just a marketing ploy, just a word. A Facebook friend is not the same a drinking buddy, or mate. It is different, and much of the criticism aimed at Facebook misses that point.

Sure, you can look at a crowd of young people, and think they are ignoring each other, each with their heads in their phones. Look a little closer, however, and you will find they are messaging each other over Facebook. It may seem odd, but then the younger generation always has seemed odd to those who are older.

The point about Facebook’s search is that once we start using it as a tool for searching it becomes easier to monetise. So we search our friends to find out what restaurants they like, or what film is worth seeing, or what clothes they are buying, and all of a sudden there is an opportunity for advertisers. It does not have to mean the end of privacy. An advertiser doesn’t have to know your name. All they want is an ability to send their promotions to people who type certain search words. Google has shown that key words sponsorship is the most powerful form of advertising ever invented. And now Facebook, with its massive user base, has found a way which may enable it to turn this user base into a Google-like advertising market. Its plan may not work, but if it does  the company’s turnover, and then profits will go off the charts.

And if it doesn’t work, Facebook has lots of other ideas up its sleeves. Recently media speculation focused on Facebook bringing out a free rival to SMS. This morning, a piece on ‘CNNMoney’ looked at Facebook’s plan to offer VoIP (that’s a Skype type service) over an iPhone. See: Facebook enables free iPhone voice calls 

It is not possible to say whether Facebook has a future, or whether it will go out of fashion as quickly as it came in. There is a good chance, however, that it is here to stay, and furthermore that it is going to work out how to turn that user base into a market for advertisers to sell to. If it can be successful, its share price will go up and up.

The UK’s great wall against China

David Cameron is not pleased, he blames the Home Office. But the penny is dropping; today the UK media has got hold of this idea that the UK’s visa regulations for Chinese visitors to this country are killing an opportunity.

It may be news in the UK press, but it’s been news for some time in China.

The snag relates to Schengen.  Or maybe it relates to the UK’s preoccupation with being anti-anything Europe.

In 1985 the Schengen Agreement was signed. Today this allows Chinese tourists and business people to travel across 26 countries in Europe on just one visa.

But the UK and Ireland opted to stay out.

So what does that mean if you are Chinese? Well, it means visiting the UK as part of your European tour is hassle. And then if you do decide to go for it, the visa form is 26 pages long, and some of it is in English only.

The ‘China Daily’ quoted data from Visit Britain, which found that no less than 61 per cent of Chinese who chose not to visit the UK cited the visa system as the main reason.

So you have the Olympics, the ultimate promotion for the UK, you have trade delegations to China, and then you have the Home Office doing its level best to counteract all that good work.

Does it smack of arrogance to you, especially the bit about the visa form having insufficient instructions in Mandarin?

Maybe it’s symptomatic of a little island philosophy, that is more worried about a pretty insignificant immigration risk than the billions of pounds Chinese tourists and businesses could pump into the UK economy.

Is the current anti-EU rhetoric symptomatic of the same problems, or is that different?

Germany’s gold haul

Well it’s a gold haul, and Germany is hauling it.

Apparently there has been quite a campaign in the German media. It’s quite interesting. Everyone’s media has their own little thing to get hysterical about. Of late the focus in Germany has been its gold, sitting in other countrys’ central banks.

And so in response, it’s having the $27 billion worth of gold physically transported from Paris and New York to Frankfurt.

It just feels quite medieval. In the age of electronic bank transfers, to physically move 54,000 gold bars seems almost prehistoric.

Or does it show increasing paranoia about the stability of other countrys’ finances?

Or perhaps it’s a ploy of the German government to create a new German James Bond type of franchise; after all they are proving pretty good material for the first film.

 

Germany’s bank bail-out

Yesterday it was told here how Germany posted its first budget surplus for a very long time.

It is just that despite the healthy figures, Germany’s public debt rose.

And why is that? Well, Germany has been forced to bail-out WestLB AG bank.

Apparently it has taken on €85 billion worth of bad assets in total. We don’t hear much about that, do we?

US Inflation dips again

The latest inflation data from the US was good.

Month on month headline inflation was zero; year on year it was 1.7 per cent.

Falling energy prices helped, but these were not the only explanation.

Month on month food and energy costs fell 1.2 per cent. But even if you strip these figures out of the equation, and just look at core inflation, prices rose by just 0.1 per cent month on month.

As far as inflation is concerned, despite QE, despite talks of a trillion dollar coin, the US is currently in a very rosy spot.

But…according to Capital Economics, the US broad money supply (M3) expanded by 6.4 per cent in December, year on year. That is the fastest growth in three-and-a-half years. The narrower versions of the US money supply – M1 and M2 – also saw their growth accelerate.

It should be pointed out that this growth rate is still modest by historical comparison. It is too soon to say that the Fed has unleashed the inflation genie. In fact, right now talk of the danger of US inflation seems a tad hysterical.  But watch the money supply closely because this will be a good early indicator of changing circumstances.

His master’s voice

It wasn’t so long ago, but the English seems so antiquated. Then again, it also seems to have been written quite beautifully.

Neoclassical economists say unemployment is voluntary. They say if there is unemployment wages should fall, making labour more competitive, so that it becomes cost effective for companies to start hiring again. They say that unemployment occurs because workers refuse to accept pay cuts, and thus their unemployment is voluntary.

But Keynes said that for a macro economy it is different. If wages fall, demand falls, and no matter how cheap labour is, companies won’t hire.

In his general theory, published in 1936, Keynes said: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics. We need to throw over the second postulate of the classical doctrine and to work out the behaviour of a system in which involuntary unemployment in the strict sense is possible.”

For more, see: New Keynesians, price stickiness and involuntary unemployment (wonkish) 

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


Showing 1 comment

  1. Garry Hawkins

    Michael,

    I think this article is worth a read:-

    http://www.nytimes.com/2012/11/25/magazine/skills-dont-pay-the-bills.html?pagewanted=all&_r=0

    What applies to the US, in this case applies to the UK.

    As for unemployment being voluntary, well there may be some truth in that. Most recently I’ve been working for the same rate I was paid in 2007, and I know many folks would be grateful for even that. Certainly somebody I know in the carpet fitting business would love to be earning what he was getting in 2006.

    Should we be ‘encouraged’ to work for what we earned in 2005? In 2000? In 1995, just to attain employment?

    With ‘real’ inflation inflation as high as it is (I don’t mean RPI, RPIX, RPIY or even RPIJ) – what fall in living standards should we be prepared to accept?

    In the end, it’s no wonder companies keep on whinging about the so called skills gap, when in fact what we actually have is a pay gap… It’s the pay gap that is leading to a lack of demand – even Henry Ford realised that if he paid his workers well, then they could afford to buy stuff – like Model T Fords…

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