1. Both economies are run by their domestic consumers. In contrast, the economies of China, Japan, Germany and East Asia are powered by overseas customers (through exports).

2. Both economies are heavily dependent on services, particularly information, entertainment, education & knowledge related. In contrast, China, Germany and Japan are dependent on manufacturing.

3. Both countries import far more than export. In contrast, Japan, Germany and China have reverse.

4. Both economies neutralize their import imbalance through investment flows from institutional investors.

5. People of both countries are in general optimistic and believe tomorrow will be better than today, and believe that education can make the difference in earning. That shows up in elevated consumer spending.

6. Governments of both nations don’t know to spell balanced budget. They borrow a lot from the markets. In contrast China, Singapore and other nations run a pretty balanced budget.

7. Both nations have had thriving markets particularly in the commodity and equity sectors for over a century. In contrast most of Asia didn’t have a thriving financial market until recently.

8. In both nations the government is officially secular but more than half the populace deeply believe in religion. In contrast most of Chinese and Russians are atheists and most Europeans are either agnostics or not ardent Christians, and in most of Islamic world governments officially have a religion.

9. Both countries have a thriving movie/entertainment industry (Hollywood & Bollywood) that is watched even by their enemy nations. This soft power is an important factor for US and some point India can exert it too.

10. Both countries were British colonies, fought against General Cornwallis (the general led the British forces in American war of Independence and was a Governor General of British India) and retained the English language legacy & favorable relationship with the former master.

11. Both are democracies with enormous number of quirks that would make an outsider wonder how the country runs with all this.

12. Both are related to Columbus. That guy sailed to look for India but found America instead.

World in 2025 according to Goldman Sachs estimates – China closing on US and India closing on Japan, but the world order is not significantly different from today. However, when you go a little further, world order dramatically changes as India and China become the top economies US comes in a close 2 – 3 and there is a vast gap afterwards.

People in tech were anticipating this device for a long time. In Microsoft we had plenty of informal watercooler discussions  on this gadget, and the past year the media has been running plenty of rumours. Finally here is the much awaited device, announced by Steve Jobs yesterday. For most of the jouranlists it was underwhelming and while it is a great device it is not yet a complete replacement for you laptop.

iPad is a bigger version of iPhone with 9.7 inch touch screen at price ranging from $500 to $829. The lowest model has 16GB memory and about 10 hours of battery life. It has a wi-fi model (like iPod touch) that is due to come by March 2010 and a 3G model (like iPhone) that is to come in April. It weighs about 1.5 pounds (700 grams) a lot lighter than most laptops and with a lot more battery life, and you can use all the 140,000 apps available for your iphone & iPod Touch though Apple’s appstore. See more technical specs here.

Here is the rough comparison of the 3 devices.

It is lot better to browse and type than iPod & iPhone, and has almost all the features iPod touch – playing music with built-in speakers, connecting to itunes store, assisted GPS (that approximately locates your position using cellphone signal), and compared to an ordinary laptop it is a lot better to read books, use multi-touch screen, etc. You can buy books through their new service – iBookstore. Unlike a typical laptop it also has accelerometer and other sensors that makes gaming and other applications more interesting.

However, it is still not a perfect device and plenty of shortcomings are present. Most importantly:

no camera, no USB ports, no GPS, no widescreen aspect ratio and no high res video output.

But, for me most importantly there is no multitasking – you cannot run you browser and text editor at the same time, and you cannot watch flash animation on the web. You can read more on the shortcomings here.

(source: Wikipedia)

iPad comes with a keyboard doc that also acts as the charger.

Also read:

http://news.bbc.co.uk/2/hi/technology/8483654.stm

http://www.engadget.com/2010/01/27/editorial-engadget-on-the-ipad/

http://www.apple.com/ipad/

Gross Domestic Product (GDP) is a very important measure in macroeconomics that measures the total value a nation (or a region) produces. It is the fundamental unit through which most measurements of wealthiness, growth and economic importance are measured. Higher the value of GDP, richer the country is.

However, in computing the GDP the area of the region is never taken into account. Though a 1999 paper by John Gallup and Jeffrey Sachs introduce the concept of GDP density (Per-capita income * population density), they didn’t elaborate it and use it to understand the economies. Area Intensive measure could show some insight into an economy – whether the value produced by an economy is people centric or whether it is resource centric. For a country like  Saudi Arabia (sitting on world’s largest oil reserves) almost all value is produced from the land, while for a country like Singapore almost all value is the people. GDP’s area intensity can be a useful measure for policymakers and analysts to understand the nature of an economy. There are some interesting insights that this measure can show.

Here is the GDP per sq.mile. The extremes are Russia and Singapore, with Singapore producing 2500 times more value per sq. mile. Russia and Brazil as the chart shows are primarily land centric in GDP value additon, while Germany, UK and Japan are highly people centric. This means the fortunes of Russia and Brazil would swing hard with commodity and agricultural prices and these economies will be highly impacted. Western Europe and Japan on the other hand will remain stable with commodity prices, but will see their fortunes impacted by labor demographics and productivity. As labor force ages and diminishes, economies with more people centricness would face major upheavals.

The three major economies of tomorrow – US, China and India are very close to each other and in the middle of pack. They will partly be impacted by commodity price change and partly from demographic changes, but would be on far better footing due to the balance.

Interestingly this measure also indicates India is not as poor as other statistics show. Unlike US or China, it doesn’t have enough area to increase food production, the land to build dams, industries and infrastructure, and the mineral and energy resources to spur the industrial revolution. Given the lesser area, it means India has to emulate Western Europe and Japan in building more of a people centric economy rather than emulating just China and USA.

Wonder 1:

What is the difference between startup entrepreneurs and non-entrepreneurs? Is it that one of them has a great notion about business strategy while the other doesn’t? No. In fact, both of them don’t have a friggin clue about business models. The difference is one of them takes the forward step with a mix of guts, greed, passion and appetite for risk. The other doesn’t.

Wonder 2:

Why do all those strategy and business professors, with apparently lots of business ideas, don’t make a dime making something, while Steve Jobs or Larry Page who don’t write about strategy still make billions? The difference is the profs are waiting for a perfect business idea that satisfies all their models, while an entrepreneur lifts up his finger and just does it. The people who talk about strategy more often than not have little clue of actually building a business. They can talk & analyze post-facto, but cannot predict the success/failure before it actually happens.

Wonder 3:

Why do planned communist economies fail even when the planners are very good, while capitalist economies thrive in apparent randomness. Is not competition wasting a lot of money in advertising and stuff? How can a capitalist economy beat a socialist economy well-designed by famous economists with planning done to perfection?

The fundamental assumption about all these three things is that a business can somehow be planned, predicted and built with perfection. The assumers think some dude thinks up the perfect idea, draws up the perfect business plan, goes on to implement and make big bucks. But, the reality is any but the most trivial of businesses cannot be predicted, and great idea goes through 100s of revisions and iterations, just like how a great musician plays a tune a million times in anonymity before achieving fame. The ones who are flexible to this iteration, can cope up with change and can adapt to randomness becomes the successful entrepreneur.

Microsoft started in 1974 building BASIC compilers with little plans of building Operating Systems and such. They kept on doing good work and waited 7 years before the major idea of DOS hit and then another decade when Windows hit. Apple started in 1976 assembling microcomputers, but were inflexible to change that almost destroyed their company. But, then a change took place a decade ago, and now they make all their money with iPod, iPhone, app store and an OS written from UNIX a decade ago. Did they have an idea about any of these in 70s? Google started in late 90s and their initial business model was like putting banner ads. They had to wait for 5 years before AdSense idea hit that gave them the real revenue and rest is history. Ford started in 1902 making motor vehicles like 100 other companies, but it was after 7 years when they really made Model T they changed the business world. And Nokia – the lumber company – had to wait 120 years before the mobile telephony took the small Scandinavian company to world stage.

As a company evolves, the ideas, assumptions, models and even the sector could change. So much for detailed planning. So, instead of waiting for the perfect idea and business model to knock our door, we have to take the step ahead and learn to work with imperfection. As we keep pounding hard to add value, keep innovating and keep our minds and ears open to new concepts, perfection and new paths will come. A society that gives enough leeway to work with imperfection and nimble to change wins. If we keep bonded to the myth that great entrepreneurs start with the perfect idea, we waste all the opportunities to work with the imperfect ideas that could morph into perfect ones.

What are the most important trends in the last decade? Which ones will continue and which ones will turn? I have taken 7 major trends –  gold, US stocks, emerging markets, debt, interest rates, housing and tech.

1. Spectacular rise of Gold.

From early 80s till the end of 90s, gold was a laggard. As inflation fears receded (thanks to China’s low cost exports) and growth fears subdued (due to “unreal” 90s – when growth skyrocketed due to open markets worldwide), gold’s role was really questioned. Most mainstream commentators thought gold bulls were dinosaurs and gold investing was anachronistic.

However, gold would prove its detractors wrong.

As the decade swung between two recessions (dot-com crash followed by jobless recovery in the US & Great financial crash of 2007-09) and harsh inflation in mid noughties, investors flocked to gold. While investors of real estate, bonds and stocks saw mixed fortunes, gold didn’t fail. In general gold goes up in uncertainties as investors are more comfortable with gold than anything else. the impacts of the financial crash might continue into this decade and inflation might oscillate when the monetary expansion is cut off. Also, as more of Indians and Chinese get wealthy they might buy more of gold ornaments and investment bars. So, gold trend has greater chances of continuing the current bullish trend.

2. Worst decade for US stocks since great depression – market going nowhere

Here is the performance of Dow (top 30 stocks in the US). For most of the decade the index went around the magic number of 10000 and except for 2006-07, investors have nothing much to cheer about. It looks likely that the market might continue this dance around 10000 for a 1-2 years before breaking out. Federal Reserve is most likely to start increasing its interest rates from this year and it remains to be seen how the market is going to handle that. The recession shows signs of ending with bottoming out job loss numbers, but a lot of recovery is already priced into the stocks. It is time to show greater attention to building a balanced portfolio – with more weight for bonds & emerging market stocks, that people used to in the past 20 years.

3. Rise of emerging markets

While developed country markets failed, emerging markets had a great run. Notwithstanding the cash post-September 2008, emerging markets gave 400% returns in the past 7 years. As India and China continue their economic growth, the stock markets should see further growth. Though there is worry about overheating –particularly in Chinese markets – in the long run, India & China markets are a far better bet than developed country markets.

4. Change at the top of the helm in Tech

After 2 decades of breakneck growth Microsoft stock had a poor decade. It followed the overall tech index and for most of the decade the index & MSFT when nowhere. On the other hand, Google (which was in their garage at the start of the decade and Apple which was close to dying, were the top tech companies of the decade. Microsoft is making valiant attempts to break Google’s hegemony in search and iPhone supremacy in smartphones, but so far it is on the losing end. Barring a major new product release, the trend would continue and Google/Apple could overtake Microsoft in marketcap in 2-3 years.

5. Historically low interest rates

In the US the interest rates hovered at or below 2% of most of this decade except for the 2004-07 period as the US federal reserve fought hard against the 2 recessions. There was a brutal side-effect to this low-interest policy – people borrowed a lot to buy homes and stocks and bonds in the 2002-07 period. Even now there is trend of borrowing  in dollar and investing in promising markets abroad (called the carry trade). This low interest trend cannot continue and within this year interest rates should start climbing again. By the middle of the decade, interest rates could be 5+% as the effects of stimulus plan cause a drag on the economy and reduction in credit.

6. Skyrocketing US debt

While US debt has been growing ever since the 1980s, the growth rate substantially increased since 2000. US debt is at highest among non-wartime periods. This will have significant impact on future interest rates and spending. This trend might continue, though there might be a push to slow the rate this decade.

7. Most spectacular housing market increase in US history

Since late 90s, US housing markets was on a tear. Part fear (of stock markets), part financial innovation (new ways of repaying loans came) and part interest rate drop, Americans flocked to the housing markets. The bubble started to break in 2006 and after effects are still showing. the market is still close to the inflated prices at the top of the decade, but is likely to come closer to the historical levels. The graph is adjusted for inflation. This decade is unlikely to repeat the performance of early noughties and growth could be low throughout the decade.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1kcJ7y3LDM&refer=worldwide

The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report.

Asia excluding Japan probably lost about $9.6 trillion, while the Latin American region saw the value of financial assets drop by about $2.1 trillion, said Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. The report didn’t give a breakdown of asset declines in other regions.

Here is the full study.

http://www.economist.com/finance/displayStory.cfm?story_id=13240636&source=hptextfeature

In the six months to January, it had an annualised trade deficit of ¥4 trillion ($39 billion), compared with a surplus of almost ¥11 trillion a year earlier.

total current-account surplus plunged to only ¥125 billion in December, 92% less than a year ago.

the saving rate of households has fallen from 18% of income in 1980 to an estimated 1% last year

The fall in saving is exactly what the “life-cycle hypothesis” would predict. People like to smooth consumption over their lifetimes, so during their working years they spend less than they earn and accumulate wealth, which they then draw down once they retire.

• US healthcare spending/GDP is the second highest in the world (next to Marshall islands)
• US spending for healthcare of $6102/percapita is almost double than most other OECD countries – $3165 in Canada and $3043 in Germany and $1149 in Korea – highest in the world

• United States ranks 49th in Life-expectancy and 45th in Infant mortality in the world. Its health stats are more closer to Third World than first world.
• Half of all Bankruptcies in US are related to medical-bills – highest in the world
• US healthcare spending growth of 2.3 times GDP growth,since 1970 is the highest among OECD countries.
• US has the least among the elderly population among OECD countries – at about 13% of population, compared to ~20% in Japan. Elderly cause far more expenditure than middle aged people.
• 40% of Americans and 5% of Canadians lack access to adequate health care.
• Medicare/Medicaid alone will take more than ~20% of US GDP by 2050

US has substantial lead in so many other indicators, but if you lose in health, you lose everything. However, Obama’s current proposal on healthcare can complicate the issues, as he focuses on making it affordable for consumers rather than reducing costs at the supply. This can skew the market.

Sources:

1. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2102rank.html
2. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2091rank.html
3. http://www.oecd.org/dataoecd/46/33/38979719.pdf
4. http://people.bu.edu/kotlikoff/Who%20is%20%20going%20Broke,%20August%2029,%202006.pdf
5. http://assets.opencrs.com/rpts/RL34175_20070917.pdf
6. http://www.msnbc.msn.com/id/6895896/
7. http://www.gao.gov/cghome/centrist20050121/img2.html

Header image courtesy of: Ortizmj