Monday, December 22, 2008

Singapore's sovereign wealth funds - GIC and Temasek Holdings

Sovereign Wealth Funds being in the news lately, I've gotten a few questions about the difference between Singapore's two SWFs: Temasek Holdings and GIC (the Government of Singapore Investment Corporation).

Here's the summary:

1. They are 2 separate and distinct companies, and from legal structure standpoint, they are incorporated as Pte Ltd companies, under the Singapore Companies Act.

2. Both companies are owned by the Minstry of Finance, who is the controlling shareholder.

3. It looks like Temasek Holdings spends more of its time investing the surplus funds of the Singapore Government, whereas GIC spends most of its time investing Singapore's foreign reserves (the amounts in excess of what MAS needs for use in exchange operations). I've created a diagram that illustrates the difference. It's not a strict division though. In an interview published here, Mr Ng Kok Song of GIC indicated that Temasek Holdings also invests some of Singapore's foreign reserves.

(Click on the image to expand it)

I also use this diagram to explain how the economy works. By necessity, this diagram is a simplified view of the economy, but it does explain the key elements. (The real economy and financial system is vast and complex; I have made simplifying assumptions in the digram)

Thursday, December 18, 2008

Preserving the International Purchasing Power of your Savings

There are 3 levels of investment success that investors can achieve:
1 - Preserving the real value of their savings (2-3% pa growth)
2 - Grow the value of their savings in real terms (4-7% pa growth)
3 - Become rich through investing (achieving 8+% pa growth)

Many investors are fixated on becoming Level 3 investors, but the reality is that a large number of investors fail to even achieve Level 1 outcomes. They take on risks and leverage subscribing to the "no risk no gain" mantra. Some succeed (sometimes by luck, sometimes through skill), but others end up sustaining losses which set them back permanently.

Investors should figure out how to achieve Level 1 returns before thinking of higher level outcomes. Then when they decide to go for Level 2 and Level 3 outcomes, they will be able to only undertake "risks" that even if things don't work out, will allow them to achieve a minimum of a Level 1 outcome. This is essential, because inflation is here to stay, and is the enemy that every saver faces. There is nothing more tragic than watching the value of your savings slowly disappear before your very eyes.

Inflation, the enemy of savers, is inherent in contemporary political-economy

Why? Because:
  1. In an economy where money supply is free to grow (e.g. in a fiat money economy, or even in a gold back monetary system if it is in a period where new gold is constantly being discovered and dug out of the ground), it is practically impossible for cash savings (stored work) to maintain or grow its purchasing power. Why? Because in contemporary economic systems, there are always new claim checks (credit) being created for which work has not yet been done. The fractional reserve banking system always extends credit (i.e. creates money via the money multiplier effect) before the underlying productive capacity is created to back this new money that has been created. In such a system, purchasing power is highest for people creating economic value in the here and now. The purchasing power of unclaimed stored work done in the past (i.e. cash savings) is bound to deteriorate over time.

  2. Further, in fiat money economies with societies where the interests of all sectors of society are represented by politicians facing periodic re-election, political forces and human nature tend to create inflation over the long run. Money creation will like be invoked repeatedly to hide the true cost of government deficits, and smooth over financial losses incurred at various times by different segments of society.
This of course, does not mean that deflation will never occur. It can occur over short term periods of monetary destruction, for example when a large number of banks fail because they made bad loans, or when people withdraw their deposits out from the banking system and convert it into cash which they stuff into their mattresses. Deflation can also happen during periods of major changes in the structure of economic production. For example, the adoption of new technologies like the steam engine which cause the cost of individual items to drop and overall productivity to increase, which general keeps wages constant so that people end up consuming a larger overall basket of goods (in a sense, this isn't “true deflation” - rather it is a failure of measurement - i.e. it only looks like deflation because the price level is the only thing we are measuring).

2 Strategies to Preserve purchasing power of Savings
under two types of Inflationary environments

Because inflation is inherent, the challenge for savers is that they need to become investors in order to preserve the purchasing power of their savings. The way to do it is conceptually simple but difficult in practice: hold cash during deflationary periods, and hold assets (whose nominal value grows in-line with the inflation rate) during inflationary periods.

The former is simpler to do: simply convert all assets to cash during deflationary periods. This requires us to identify inflection points between periods of deflation and inflation, which requires us to apply qualitative judgment.

The latter is more challenging: we need to figure out what kinds of assets will hold their real value in inflationary periods. Inflation occurs when the money supply changes are not in line with changes in underlying economic production, by exceeding the amount needed for the upcoming amount of production. (I subscribe to the theory that inflation is a monetary phenomenon. Inflation occurs where there is a sustained rise in the general price level. We are not talking about changes in relative prices which are caused by localized supply/demand changes, or changes in the demand/supply chains arising from technological or structural changes; for example the advent of containerization made it cheaper to import tropical fruits, and reduced the price of exotic produce in supermarkets.)

Investors need to respond differently depending on the environment in which inflation occurs:
  1. Money supply increases in excess of increasing population/economic production. In this type of inflationary environment, one of the safest things to do is to hold a share of the profits accruing to the economy's underlying productive capacity. We can do this either by owning a share of all the companies in the economy, or own the land which is required to house the population and capital assets in the economy. This of course, assumes that the land in the economy is limited, and that you are not in a wild-west frontier town where available land is in abundance. (This refers to actual land on which we can create value; not an apartment or some strata-titled portion of a building whose earning power depends on factors beyond its control)

    A passive index tracking fund is the easiest way to buy a representative share of all companies in the economy. It saves you the trouble of having to buy shares in individual companies in the economy. (If you did this, you would have an additional problem: some of the companies would inevitably go bust as their products become obsolete. New companies with new products would come up. You would have to constantly rebalance to get the money from your existing investments to buy shares in these new companies. A stock index, by periodically dropping off declining companies and adding in new up-and-coming companies, solves this problem for you. It is roughly equivalent to only holding companies that are in their middle age. Dying companies are sold off as they shrink, but before they go bust, and the proceeds are used to buy shares in up and coming companies which are past their youthful growth and maturing into middle-aged big company status.)

    As the economic pie grows bigger, your assets will not just maintain their purchasing power, their purchasing power will actually grow in real terms. The only thing that will destroy this real return is if you either (a) buy the stock index at an unreasonably high a price, or (b) the economy structurally changes and permanently reduces the corporate sector's profits as a percentage of GDP.

  2. Declining population/economic production; with money supply not declining in line with declining production: Investors in such economies face an insurmountable barrier. Holding cash is futile because inflation diminishes its value, while holding a share of the economy's productive capacity would be futile, since economic production continually declines. To see how this works, imagine that the economy is that of an isolated island. If the people on the island are slowing dying out, then the amount of goods that are being produced will also slowly drop. You could hold 100% of all the profits accruing from economic production, and it wouldn’t mean much over time. Likewise, holding a factor of production like land is also futile, unless you can sell it to foreigners looking for a second home. Investors would do best to move their savings to a country where the population is not shrinking.

    Even if deflation were occurring in this dying-out island, investors holding cash would only be delaying their day of reckoning. While their cash holdings would enable them to buy more and more of the local produce, the amount of local produce would eventually drop to a level where it falls below the critical mass needed to support the specialization of labor required for many of the complex products in modern living. Unfortunately, this isn't just an academic exercise - there are many countries in the world where the population is already declining (e.g. Japan) or are soon to decline.
The corollary of this analysis is that investing in a passive index-tracking fund, often touted as a simple and safe way to invest over the long run, is actually a bet on macro-economic outcomes. Long term investors of such funds are making macro-economic bets, and it is wise to keep in mind that predicting macro-economic trends is a difficult task.

Investors in small countries need to preserve the
International Purchasing Power of their Savings
by Investing Internationally

Investors living in small economies, where the economy is not broad enough to provide all the goods and services desired for modern living, need to invest internationally to preserve the purchasing power of their savings. (For example, if you are living in a small economy which only produces widgets, it's not a good idea to only buy a share of the profits of local productive capacity, unless you're very sure that widgets will continue to be in demand for the next 100 years. Instead, you'll also need to buy a share of the farming capacity of other parts of the world, a share of the economic production of countries which make bricks, computers etc.)

But investing internationally presents another challenge: foreign exchange exposure. How should we think about this?

Currencies will undergo bouts of over and undervaluation, and in practice, it is incredibly difficult to know whether a currency is over or undervalued, and when this will change. There are a lot of variables involved, and over/undervaluation can persist for decades. For example, growing current account deficits in themselves do not necessarily indicate that a currency is overvalued, since in the world of free flowing capital, the desire for a currency as a safe haven can cause this over valuation which in turn causes a current account deficit by making imports "too cheap". A mercantile explanation for currency movements and current account deficits doesn’t capture the reality of the present economic and financial architecture. With free flowing capital, it's difficult to tell if the tail is wagging the dog or vice versa. (Some would even say that it's hard to know which is the dog and which is the tail!)

There are 2 broad strategies that can be employed to preserve the international purchasing power of savings:
  1. Buy the profits of every economy. You can buy a share of the profits of the productive capacity of all countries at the same time, so that over time, overvalued and undervalued currencies cancel each other out. This works as long as long as global production continues to grow (i.e. the global economy continues to grow).

  2. Buy the profits of international products/commodities. You can also buy a share of profits of the productive capacity of an internationally used (and internationally traded/shipped) product or commodity. It is important that the product or commodity chosen be one that will continue to be in greater demand over time. For example, you can buy a share of oil production, but you wouldn't buy a share of natural gas production because natural gas tends to be difficult to transport and is often used locally where it is found (at least until the global infrastructure for handling LNG is built up). For internationally transported products and commodities, the price level is constant across the globe, and real (not nominal) producer profits will generally be unaffected by changes in the value of individual currencies.

There will also be situations where a company operating within a foreign country looks undervalued (or an entire corporate sector, e.g. the S&P 500, looks undervalued). The question then is: is the currency of the country of the intended company undervalued or overvalued? If it is overvalued, then any investment there may be a Sisyphean one - when the foreign currency drops from its overvalued position, any gains in foreign currency terms could be negated in international currency terms. For example, buying a share of the electricity production of an island nation that only exports bananas won't help you if bananas experience a permanent drop in value in the global market (perhaps because scientists discover that eating bananas causes premature aging). You'd be a prominent “tycoon” on that little island and the villagers would fete you like a king to keep their electricity supply on, but it wouldn't give you the means to buy cars from Japan, wine from France, a trip to San Francisco, and so on.

Making investments in a foreign country requires a qualitative assessment of the country: its social, legal and economic structure, and its long term economic relevance to the world. You'll also need to determine the probability that the currency is over or undervalued, the forces driving the apparent over/under valuation of its currency, and what will probably cause this to change.

No country is truly self sufficient, so Investors in big countries should also think about preserving International Purchasing Power

There is a case to be made that no country in the world today is truly self sufficient. Given the extensive specialization and division of labor, and large scale of production needed to support the complex products and technologies that we use in daily life, it is entirely possible that our modern standard of living can only be accomplished if all of humanity is involved in its production (so that we can achieve the needed scale of size and specialization). So preserving the international purchasing power of savings may be a concern of all investors, not just those living in seemingly small economies.

When buying assets (to preserve purchasing power of your savings), only buy at a fair/cheap price

This entire discussion presupposes that investors only buy those assets we've discussed when their prices are at fair-value or lower. No matter how intrinsically good an investment is at preserving real purchasing power, buying it at an overpriced level can make it an unprofitable venture. Buying at a fair price is an essential rule for successful investing.

Image by Martin Kingsley, via Wikimedia Commons, licensed under the Creative Commons Attribution 2.0 License

Sunday, November 23, 2008

The 2008 Credit Crisis: Causes and Consequences

What is this Credit Crisis about; What's actually happening to the real economy, and how does it affect investors? The roots of the credit crisis have been in the making for several decades.

What's been happening over the last four decades: Credit has been growing as % of GDP

In a fiat-money fractional reserve-banking economy, the supply of money in the banking system broadly correlates with the amount of credit (loans) that have been extended to companies and consumers.  As you can see from the following data, the money supply in the economy relative to GDP has been growing:

1970: M3 USD 0.6 t; Nominal GDP: USD 1.1 t; M3 to GDP: 54.5%
1975: M3 USD 1.0 t; Nominal GDP: USD 1.7 t; M3 to GDP: 58.8%
1980: M3 USD 1.8 t; Nominal GDP: USD 2.9 t; M3 to GDP: 62.1%
1985: M3 USD 3.0 t; Nominal GDP: USD 4.3 t; M3 to GDP: 69.8%
1990: M3 USD 4.0 t; Nominal GDP: USD 5.8 t; M3 to GDP: 69.0%
1995: M3 USD 4.3 t; Nominal GDP: USD 7.5 t; M3 to GDP: 57.3%
2000: M3 USD 6.7 t; Nominal GDP: USD 9.9 t; M3 to GDP: 67.7%
2005: M3 USD 10.1 t; Nominal GDP: USD 12.7 t; M3 to GDP: 79.5%

An increasing amount of credit has been extended by the banking system to economic participants. In a closed system, the credit can represent three things at a systemic level: (1) increased consumption using the credit, which in turn causes increased capital investment to support the increased consumption; (2) increased funding of capital investments by credit to support increasing consumption; or (3) increased prices of real assets and financial assets as the credit is used to purchase assets. 

Leading to Unsustainable trends: (1) building white elephants;  and (2) increasing financial savings while depleting economic savings

The first two in themselves would not be a problem, since increased economic productive capacity provides the basis for economic growth. However, the fact that the proportion of credit to GDP is increasing means that either (a) the structure of the economy is changing to become more capital intensive, where higher levels of capital are required to produce a unit amount of goods, or (b) that the increase in consumption and productive capacity is increasing at an accelerated rate. Unfortunately I believe that hasn't been the case, which means that society has been  building more capital goods than required - or in other words, we've been building white elephants. (I use the term "capital goods" loosely - it can also refer to housing, which produces "living space" which is captured in GDP as rental income)

The third is a problem if it is sustained for too long, because it drains the economy of real savings. As the price of homes and financial assets go up, individuals believe they have built up savings for retirement and emergencies. However, on a systemic basis, no economic savings are being built up to sustain capital goods creation. What appears to individuals as savings is actually financial savings, which is different from economic savings. In the economy, savings that fund capital goods creation (real productive capacity) can only come about from foregone consumption. Capital goods are created when people work on building machinery and houses instead of making consumption goods. This means that the aggregate amount of consumption goods created (and consumed) is less than the amount of things they have created (income). If the income from work is not forgone to fund the creation of capital goods, then there is no economic savings. If the growth in asset prices goes on for too long, it will cause the nation to appear wealthy as the financial savings and financial wealth appears to be high. But in reality, the economy's underlying productive capacity is deteriorating because no income has been forgone to fund it. At some point, asset prices will collapse for psychological reasons, or because the underlying economic productive capacity cannot produce enough income to sustain the high prices (e.g. when rents cost more than what jobs pay).

The consequence of which is this Credit Crisis
- What's happening in this crisis

The current credit crisis seems to be a confluence of these forces: (a) the build up of white elephants funded by income forgone in other countries (imported capital), (b) the sudden fall in value of financial assets after their prices rose to unsustainable levels, and (c) the diminished productive capacity of the economy.

The result is that people who have borrowed (financially) to invest in white elephants are going to lose their money and default on their debt. This means that there will be significant destruction of money in the banking system, which would lead to banks reducing lending as they work through the losses. This reduced lending is going to crimp economic activity and capital investments for a while, and lead to a recessionary bias. (In the past, before deposit insurance, this might have led to runs on the banking system, which would be enormously destabilizing and could change the psychology of the population to the point where people reduce their living standards by lowering their consumption of goods and services, leading to a deflation and depression as the population demands a lower economic output than what the productive capacity of the economy is structured to produce.)

At a societal level, it also means that the economy does not have the productive capacity to pay back (in terms of goods and services) the people who have spent time building the white elephants. They may not realize this, because they could have already received payment from the people who borrowed money to create the the white elephants. But the reality is that there are more of these dollars, which are claim checks on future economic output, than there are goods and services that the economy can produce in future. (If they had been building needed productive machinery on the other hand, the claim checks could be used to claim the future products produced by those machines). In effect, all economic participants are being shortchanged as their dollars are devalued (through inflation).

This is leading to:
(1) inflation, causing everyone to suffer;

In a society without representative government, this devaluation of claim checks wouldn't be so severe, because the money supply would contract as bad debts are taken onto the banks' balance sheets. This reduction in money supply (manifested as destruction of shareholder's equity and deposits) would reduce the number of claim checks in the economy, to match the actual productive capacity of the economy.

But it would of course, be manifestly unfair to certain segments of the population. The trades people (labor) who invested their time in building the white elephants would be made whole, while persons who have saved their income would be wiped out thanks to the misjudgment of the people who borrowed to create the white elephants.

Politically, this has been hidden through the government's deposit insurance schemes and capital injections. These have the effect of protecting the savings of the savers, and preventing the monetary base from contracting. But the effect of this is inflation, as there are now more claim checks than the economy is able to produce goods and services for in future. Savers are still harmed through inflation - but the inflation creeps up slowly, and is politically more acceptable.

Societal over-investment in white elephants is fraught with moral hazard. Whichever way you look at it, the bad judgment (or reckless attempts at making a profit from creating too many capital assets) of one group causes everyone to suffer. The negative externalities of misinvesting capital into white elephants is simply not priced in when investors borrow money to build capital assets. This is why credit/debt extension needs to be regulated. 

And also leading to:
(2) a Recession; (how is the recession going to play out?)

The economy is going to be recessionary in nature as the reduction in credit squeezes economic activity. The credit squeeze is also going to be difficult for companies that rely heavily on debt financing - they are going to face tough times as their cost of capital goes up, and some businesses that are economically viable in the long-term may go bankrupt. The extent of the recession depends on the amount of mis-allocation of capital (i.e. credit/savings) that has happened. There is also going to be an impact from job losses and company closures in industries that were geared to building white elephants, and servicing the people building white elephants.

A cursory glance suggests that M3 as a % of GDP has at most peaked at 69% of GDP prior to past recessions. Considering that today's (2008) M3 as a % of GDP is probably around 80%-90% (this is a guesstimate, because the Fed stopped publishing M3 data after 2005), it suggests we are going to face a economic recession worse than any since the Great Depression. Conceptually, this is going to happen as society as a whole realigns itself to "forget the debt owed for work done in building white elephants (this debt will never be repaid), readjusts, and gets back to its normal course of living" (unfortunately as we have described earlier, the fallout and impact to different segments of society is unequal). Society as a whole will adjust to lower economic activity than what the previous high level of capital investments suggested the economy was capable of. Practically, this is going to happen through two mechanisms:

(1) The banking system is going to reduce outstanding credit as debts go bad, and this will crimp economic activity. In the short term, this may even lead to deflation.

(2) Because of the Fed's injections into the banking system, and because of the existence of deposit insurance, inflation is going to kick in as the money supply stays constant while the economy's productive capacity contracts, or grows slower than what the prevailing money supply was "intended" for.

This will be a deep recession,
but it's probably not another Great Depression

This is going to be deep recession, probably worse than anything we've seen so far. But I think the odds of a depression (with regular people starving and living off soup kitchens) are low, because:

(a) Deposit insurance now exists, preventing money supply destruction, and preventing systemic bank runs which would send people into a psychological state that would get them to reduce their standard of living and consumption of goods and services, below what the productive capacity of the economy can produce, hence leading to severe economic contraction.

(b) the injections of liquidity by the Fed and Treasury, which help to prevent money supply destruction by keeping banks solvent and allowing them to keep their credit facilities open to economic actors.

(c) as long as free-trade continues to be viewed positively in the political agenda, the United States has products which it can export to countries holding lots of dollars in reserve, of which there are many (countries which the U.S. has trade deficits with). When these countries increase their purchases of U.S. exports, paid for with the U.S. dollars their central banks are holding in reserve, it will stimulate economic production and follow-on economic activity. In a sense, these are an untapped group of consumers which can kick-start economic activity should the domestic mood be so dour that people reduce their economic needs way below economic productive capacity.

(d) the U.S. population is still growing. People getting married will need new houses, consumption goods etc. While some segment of society, especially those got into excessive debt over the last decade, are going to reduce their standard of living, the introduction of new young people into the economic system should bode well for overall production and consumption. (Simply adding young people into a non-functioning/fragile economic base would be useless - look at many countries stuck in 3rd world conditions because the political-economy isn't set up for its young people to participate and create a better life. In the case of the U.S., a growing population helps because the political-economic framework exists to allow everyone to create a better life for themselves.)

We are in uncharted territory;
Living in a Grand Economic Experiment

Nonetheless, it's important to realize that we are in uncharted territory with the 2008 credit crisis, because society now has two tools that weren't present in previous credit-crisis led economic contractions: fiat money, and central banks.

There is a case to be made that many of the depressions since the 1800s were caused by a contracting money supply following a credit boom. Prior to the 1900s there was no central bank in the United States who could manage the money supply in a coordinated fashion. And broadly speaking prior to the 1960s, most countries were operating on the gold standard, which constrained the degree of freedom that central banks had.

We are living in the midst of a grand experiment which will tell us if credit-crisis led depressions can indeed be prevented through inflationary monetary policy, without adversely preventing the economic from making the structural changes needed to compensate for the excessive investments in white elephants. But make no mistake, this recession is probably going to be deep.

Sidebar Observation: Credit crises are a normal part of the human-economic cycle (Long-term investors should expect them)

How should long term investors think about the cycle of oscillating between bouts of "Euphoria Phase", with high valuations of capital goods like houses and companies/equities because of overinvestment / overextension of credit, and the subsequent "Subdued Phase" where the real price of capital goods drop as excess investment/debt is unwound?

My hunch is that the cycles run a duration of one human lifetime or so. The first ended in 1929-33, and the current one is ending in 2000-2008. If you look further back in history, credit led booms were also probably the reason for Panic of 1837, and the Panic of 1873 which led to the Long Depression. In other words, credit-bubble led cycles are likely to be an inherent feature of fiat money economies, and co-exist with the regular business cycles caused by inventory fluctuations. Investors and savers should expect these cycles. 

Investors living today in their 20s and 30s need to work within the framework of a subdued phase. This will probably last for some time, and the implication is that investors today should not rely on the broad conventional investment wisdom built up over the last 2-3 decades during the euphoria phase (such as the rule of thumb that stocks as an asset class will always outperform other asset classes, and the feeling that general stock prices always go up over time)

Post script (14 Mar 2009): For an explanation of the financial crisis from a financial perspective, have a look at this excellent infographic

Image by i ♥ happy!! from Wikimedia Commons, licensed under the Creative Commons Attribution 2.0 License.

Thursday, October 30, 2008

10 year outlook for investors: U.S. dollar Inflation, Devaluation, and Structural economic changes

It's notoriously difficult to predict the future of complex systems like human societies, and betting hard-earned money on predictions is not my idea of investing. Nonetheless, long term investing requires us to have a long term view of the economy, to allow us to think through investing possibilities and to test our investment ideas. As Eisenhower is reputed to have said, "the plan is useless, but planning is essential".

So here's my thought exercise on the outlook for the future:

Outlook for 2008 to 2010
(Immediate future)

In the immediate future (2008-2010) or so, we will likely see a severe recession as the misallocation of savings invested into unproductive assets starts to work itself out. The misallocation of resources brought about by excessively cheap credit was extreme. The excessive growth in credit (reflected as M3 money supply growth) relative to GDP growth over the last decade strongly suggests this.

The fact that core inflation was low during this period of M3 growth suggests that most of this credit was used for capital asset formation (e.g. housing, machinery and equipment) and/or channeled into financial assets. Cheap imports from China may have had some impact on keeping inflation low, but imports are actually a relatively small component of the US economy, and cannot completely explain the lack of inflation in consumption goods (products and services). 

It is beginning to look like that the recent U.S. fixed capital formation was mostly in housing, and not productive assets like machinery. This could make the recession a longer and deeper one, as the U.S. economy may not have a whole lot of spare productive capacity (capital assets such as machinery) to form the foundation for economic growth. There isn't a lot of spare machinery lying around that we can just turn on when demand sentiment picks up. This can slow the recovery process because businesses will need to invest in new machinery before they can increase economic output. And they will only do if they see sustained customer demand or a general improvement in the mood of the country. This means there is an "energy barrier/step-function" to cross before the overall economy will start growing again. Without an uptick in consumer demand, businesses won't invest in capital assets. And without investments in capital assets, there is one less mechanism to get people back to work and earning income.

On the other hand, if businesses had spare machinery, it would be an easier decision to reactivate one of the idle machines and cater to minor increases in demand. The economy wouldn't have a step-function barrier to economic growth, but rather would be able to inch its way forward and slowly increase overall economic activity. While this chicken-and-egg catch-22 is an unfortunate hurdle to economic recovery, it also means that once the step-function is crossed, the economy will likely experience strong and sustained growth as economic activity lurches forward to produce both capital and consumption goods.

The sheer quantum of the misallocation of resources (manifested as credit losses) in the boom leading up to 2007 also suggest that it will take a prolonged period of time for the economy to untangle the web of work wasted on building white elephants. A large amount of claims on future work will not be honored, because the economy did not build enough productive capacity to honor these future claims. The work was wasted on creating white elephants instead, and it will take some time for economic participants to get over this and move forward. The sheer size of the problem also makes it likely that consumer demand will drop a lot in the short term, which may lead to deflation as businesses cutprices to cover their fixed costs.

Outlook for 2010 - 2020
(Long term)

In the longer term, over the next decade (2010-2020) or so, I believe there is a significant probability that we will see (1) monetary (forex and pricing) instability, (2) the general reduction (reversion to mean) in corporate profits as a % of GDP, and (3) structural changes in the factors of production.

(1) Monetary instability may come about because:
  • To combat the current credit crisis, central bankers around the world are injecting money into the banking system to counteract the destruction of money caused by the massive debt writeoffs. While some economists might argue that this merely delays the reallocation of credit to productive resources, I agree with the current approach because a reduction in money supply would cause the flow of money to freeze as banks try to bring themselves back into solvency. This would push the real economy into a depression, which could bring about a change in social and political outlook that would steer us away from free market capitalism.

    But over the longer term, this massive injection of money into the money supply base will cause a strong inflationary bias in the economy. While the Treasury was sterilizing some of the money supply injections earlier, I believe it will ultimately stop doing so, or sterilize less than the amount of money injected, to allow for a net quantitative increase in money supply. In other words, the Fed will turn on its printing press and print out money.

  • The U.S. government has huge, unfunded social security and medicare obligations to the baby boomer generation who will be retiring over the next 15 years. By some accounts, the unfunded obligations total up to 35 trillion dollars, which more than twice the GDP of the United States. The government can issue Treasury debt to fund these obligations, but the size of the government existing debt ($10 trillion) combined with the sheer size of the unfunded obligations, suggests that there simply won't be enough people to buy the debt that the Treasury will need to issue. Given the short-term focus of the political process, political expediency would likely pressure the Federal Reserve into buying this debt from the Treasury, in effect printing money for the government. This will cause further money-supply inflation, and effectively short change the beneficiaries of Social Security and Medicare.
Both these factors will cause the money supply to grow in excess of the underlying productive capacity of the U.S. economy. This will in turn, lead to a sustained depreciation of the US dollar against many other currencies. While Asian central banks will try to stem this depreciation to support their economies, which are structured to rely on exports to keep running, it is probable that they will eventually reduce their buying of US dollars as (1) it becomes politically difficult to keep buying US dollars as US inflation destroys the value of their dollar holdings, (2) this attempt to fix currency exchange rates starts importing inflation into the local economy, and (3) the continued monetary sterilization carried out to balance the sale of local currency (through selling government bonds or increasing banking reserve requirements) leads to rising local interest rates that distort the domestic economy. If central banks do not manage this process well, there is a potential for currency and monetary instability as currencies see-saw and whiplash repeatedly. 

Unfortunately, the odds are that central bankers will not be able to manage this process as they would like, because as long as political systems reward short-term results, governments in export-oriented economies will favor the central banks' continued currency intervention because it supports jobs in their export-oriented economies. The depreciation of the US dollar will be a long term trend, but there is a high probability is that it will take place in a lurching, see-saw fashion, with bursts of rapid devaluation offset by periods of appreciation or sideways movement.

The US dollar will only stop its long term depreciation when the U.S. economy's productive capacity allows it to produce excess goods, and its depreciated currency makes its goods attractive in international markets. The turning point will be reached when the US export machine starts firing up on all cylinders. Such a period of changing expectations and changes in the direction of capital flows will probably also cause volatile currency movements.

(2) Reversion to mean of Corporate Profits as % of GDP

This will happen because of the continuing economic growth of China and India. As their workforces become fully employed and linked up to the global economy, the source of cheap labor will gradually dry up. The labor surplus over the last 2 decades which depressed wages and allowed companies to earn outsized profits will go away. The result is that more of the US GDP income will accrue to labor as opposed to corporate profits.

(3) Structural Changes in the Factors of Production

The Earth's increasingly affluent consumers will put strains on the planet's capacity to supply these basic resources. If this is simply a problem of increasing supply capacity, then any jump in commodity prices will be temporary since it will induce additional investments in commodity extraction capacity.

However, if we are hitting the planet's resource limits (e.g. peak oil), then it means that each unit of resource may require more capital intensity to produce (e.g. difficult-to-extract oil located in geographically challenging areas). This would mean that higher real commodity prices may be here to stay, and it implies that we will face structural shifts in the economy as more of GDP income needs to be diverted to pay for basic resources which require more effort / technology to extract. For example, each hour of work we put in now buys less products, because more of that effort has to put into pumping hard-to-reach oil out of the ground instead of making the products we want.

This could make a whole host of products that we currently enjoy economically unfeasible to produce. This could radically alter the economic landscape. Companies which have existed since the dawn of the automotive age could go out of business as their economic models become impractical. For example, will big box stores be practical in a world where oil is ultra-expensive? For that matter, the concept of suburbia itself could be threatened as the cost of living in spread out spaces becomes prohibitive. We could return to an era of living in high-density living, like in Victorian England.

Saturday, October 25, 2008

Are U.S. stocks cheap? (October 2008, S&P 500 at 860)

The Natural Cadence of the U.S. Economy:

Between 1950 and 2000, corporate after tax profits have averaged 5% of GDP (historically they have hovered between 4% and 6% of GDP source1, source2 ), out of which approximately 40% of the profits have been paid out as dividends (net dividends) and 60% retained for reinvestment (source: using data from the BEA for nominal GDP and Corporate Profits).

The historical risk-free interest rates (1 year treasury bill) between 1950 and 2000 have averaged approximately 5%. (This also seems to be the case going back to 1900 in the modern industrial economies of Europe, the U.S. and Japan)

Nominal GDP growth during this time has averaged 7.3% per annum. As a rough approximation, corporate profits after tax should also have increased at this rate. Given that corporations retain 60% of their profits, this implies that the historical ROE is about 12% on average.

In other words, the structure and cadence of the modern U.S. economy suggests that over the long run, the natural order of things is for the economy to grow at 7.3% per annum in nominal terms and have a risk-free interest rate of 4.8%. Looking at each year's GDP by income, the corporate sector's post-tax profits account for 6% of GDP, of which it distributes 2.4% of GDP to its owners, and reinvests 3.6% of GDP for corporate sector fixed capital formation. The natural cadence of interest rates, risk premium and economic activity has allowed the corporate sector to this with an average ROE of 12%.

With this natural cadence, stocks are fairly priced when
the Market Capitalization to GDP ratio is around 80%

If we believe this economic cadence will continue into the future, then we can calculate the NPV of the U.S. corporate sector using the nominal growth, ROE, and profit as a % of GDP figures we have observed.

(a) Estimate 1: Given a required discount rate of 8%, the NPV of Book Value of all corporations after 40 years + NPV of all dividends received over 40 years is approximately = 18.64 times the current corporate profits, which = 93.2% of GDP (the average corporate profits is about 5% of GDP, this means that the NPV of the corporate sector is 5 x 18.64 = 93.2 % of GDP)

(b) Estimate 2: Given a required discount rate of 8%, half the NPV of Book Value of all corporations after 40 years + NPV of all dividends received over 40 years is approximately = 15.75 times the current corporate profits = 78.75% of GDP (the average corporate profits is about 5% of GDP, this means that the NPV of the corporate sector is 5 x 15.75 = 78.75 % of GDP)

Stocks are now fairly priced
(Oct 2008, S&P 500 at 860)

As of Oct 25, 2008, the Market Capitalization of the US stock market (based on the Wilshire 5000 index) is about 74% of 2007 GDP.

It looks like it is fairly valued (it's not overpriced, but neither is it a fire-sale price), but only if:

(a) you are a long term 20-30 year investor willing to accept 5-6% per annum returns (you should conservatively estimate expect returns to be less than the discount rate or economic growth rate, because your purchase price and selling price may be at different valuation multiples), and

(b) the cadence of US economy over the next 40 years will be similar to the period since 1950, so that the historical averages we are using in the valuation will remain valid over the next 40 years. This assumption would require that economic cadence is determined by the legal and capitalistic free-market structure of the U.S. economy, combined with the socio-political norms in the U.S. and universal human/psychological factors (all of which look likely not to change) and not by technology (which is improving at an accelerating pace as futurists such as Ray Kurzweil suggest).

(c) you think a 8% discount rate is sensible.

Will stock prices go down further?
(Historically, what is the cheapest that stocks have gotten?)

Yes, it's certainly possible. Investor psychology can cause markets to be severely undervalued or overvalued for prolonged periods of time. In the 1940s, the US stock market has at times had a capitalization as low as 40% of GDP. In the 1980s, during the high interest rates of the Volcker era, it was trading at about 50% of GDP (see Nick Nejad's blog post). So if history is a guide, investor psychology could make the markets could go down another 33%. (Historically, those two periods were also times when equities were out of favor with the public at large. The period between the 60s and 1974, and the period between the late 80s and 2000, were periods when equities were extremely popular.)

If we are moving into a period when equities are out of fashion in the zeitgeist, then it is conceivable that the market could fall till its value is only 50% of GDP (i.e. S&P 500 at around 580; or it could just stay stagnant as GDP grows until the ratio is about 50% (GDP would have to increase by 50%, ie. grow at 7% for another 6 years for this to happen).

The Wall Street Journal also has a neat table showing historical PE ratios of the market. Though PE ratios of the market in any one-two year period are not indicative of historical averages (because corporate profits as a % of GDP swing from year to year), they do suggest the possibility of the market going down by 35% if we return to the market PE ratios common in the 1980s. (2008 market PE ratio: approx 12; 1974 market PE ratio: approx 7)

Can we use this market capitalization to GDP ratio to assess the value of other equity markets?

This approach works for the U.S. equity market, because (a) the U.S. economy is extremely broad, robust, and resilient, and (b) the U.S. equity market is well developed and the publicly listed companies are representative of the overall U.S. corporate sector.

This is not true for all countries. For example, Brazil has a broad and deep economy, but a disproportionate amount of its market capitalization is for natural resource companies. Buying the index tracking fund there would not give you exposure to the underlying economy. As another example, Singapore has a small niche economy and a stock market that hosts many companies with businesses outside of the Singaporean economy. The market capitalization to GDP ratio in Singapore would tell you nothing about whether Singapore listed equities are overpriced or underpriced.

Buying stocks (or an index tracking fund) is a bet on the U.S. economy.
So should investors be concerned about the huge (and growing) U.S. current account deficits?

The 2007 current account deficit was about USD 731 billion, or about 5% of GDP. The impact of this to investors is that as the U.S. imports more stuff every year, the U.S. dollar will be under constant devaluation pressure.

(Side Note 1: The 2007 U.S. Net International Investment Position was about negative USD 2.4 trillion dollars, or about 15% of GDP. The NIIP has been deteriorating at a slower rate than the growth in cumulative current account deficits, suggesting that foreign holders of US dollars have been buying US assets whose prices generally decline over time, and/or that US investors have generally been buying overseas assets which generally appreciate in price over time. [see the BEA's "changes in selected major components of the international investment position" for details] But the U.S. NIIP is deteriorating nonetheless.)

(Side Note 2: As a comparison, Australia has a negative net international investment position of about 68% of GDP. This could theoretically be due to Australia borrowing more to fund its gross fixed capital formation which is about 25% of GDP, as compared to the gross fixed capital formation of about 18% of GDP in the U.S.)

If you are U.S. based investor who uses USD for day-to-day living, then this won't matter as long as the U.S. economy is able to start domestic manufacturing of items that were previously imported. My bet is that it will be able to do so. The resourcefulness and ingenuity of the capitalistic U.S. economy will rise to the occasion. You US dollar investments will return you US dollar dividends which will maintain their real value.

If you are a overseas based investor who used another currency for day-to-day living, then you would be concerned that even if you own all the companies the US, the US dollar dividends would be worth less and less, in real terms, in your local currency. However, my bet is that if the US dollar depreciates excessively, US companies will begin manufacturing things that used to be imported, and also export their wares as the depreciating dollar makes them more price competitive. This should limit the decline in the real value of your US dollar investments. But the quantum of the decline in real value of your US investments is hard to determine.

Tuesday, October 21, 2008

Analyzing eBay - How wide is eBay's moat?

eBay is often thought of as a business with a wide moat, because its core eBay site has a strong network effect and it has the largest number of users among its competitors. As with most network effect businesses or technologies, once a dominant player emerges, it is practically impossible to dislodge because of the value the network has to its users (the value created for its users grows polynomially as the number of users increases linearly). eBay was seen as the dominant franchise.

eBay started as a giant swap meet for people to buy and sell to each other. eBay was a venue for traders to meet and trade, much like a stock exchange. Such exchanges are economic entities that enjoy a tremendous network effect, and they are able to command economic rent. (The stock exchange analogy is conceptual only. In real life, there are large market makers participating in the U.S. stock exchanges each of which accounts for a large proportion of trading volume. This erodes the ability of the exchange to command economic rent, because the market makers can just link up among themselves to create a parallel exchange)

Because each participant in an exchange can potentially engage in two-way trade with all other participants, each additional participant increases the number of trading possibilities polynomially (think of it as a complete graph - such a graph has n(n-1)/2 edges). Traders, who value the number of trading possibilities available in an exchange, the value of the exchange grows tremendously as the number of participants increases. In practice, once a critical mass of participants is reached, the value of the exchange to all its participants probably grows at a rate far greater than the polynomial growth that the number of trading possibilities would suggest. In real life once a critical mass of traders is reached, benefits like economies of scale in trading volume and market liquidity kick in once a critical mass has been reached.

This economic characteristic makes it extremely difficult for smaller exchanges to compete with a larger dominant exchange. In fact, like all network effect entities, once a large exchange achieves a size beyond its competitor(s) by some amount, a tipping point is reached and competing exchanges will shrink rapidly as participants migrate to the dominant exchange. eBay was thought to be the dominant exchange and hence unassailable.

However it is probable that this assertion that eBay's site has a network effect is wrong. This is because eBay may actually be a marketplace and not an exchange. Exchanges have a network effect, while marketplaces do not.

There difference between the two lies in the trading patterns and behavior of its participants. In an exchange, all participants are traders that buy and sell from each other. In a marketplace, participants generally perform only one role: they are either buyers or sellers. Marketplaces are venues for two groups of people to meet, and for each group to derive benefit from the other group. The value of a marketplace to a participant is proportional to the number of participants that belong to the other group. For example, the value of a market to a seller is proportional to the number of buyers present, and the value of the market to a buyer is proportional to the number of sellers present.

Marketplaces do not have strong network effects because the value of the market only increases proportionally to increases in the number of participants. (Unlike an exchange, whose value increases disproportionately). However marketplaces do exhibit a self-reinforcing feedback loop effect. The more buyers there are, the more valuable the market venue is to sellers. This causes more sellers to come on board. The increased number of sellers in turn makes the market venue even more valuable to buyers, which causes more buyers to come on board. This in turn makes the market venue even more valuable to sellers, enticing more sellers to come on board, and so on. Examples of marketplaces are newspapers, shopping malls, and supermarkets/department stores that sell on consignment.

Newspapers (especially the classifieds section) are essentially a market venue for advertisers and readers. The more readers there are for a classifieds section, the more important it is for advertisers to advertise there. With more advertisers, readers will find the classifieds more valuable because of the increased ranges of products and services available. This brings in more readers, which in turn brings in more advertisers. (In a sense, the "news" in a newspaper is just a sideshow used to bring readers in - the real business of a newspaper is in being a market venue for readers and advertisers.)

Shopping malls operate on the same principle. The more people there are who visit a mall, the more valuable the mall is to shop owners. And the more shops there are, the more useful a mall is to customers.

Like exchanges, marketplaces tend to be "winner takes all" types of businesses. If an marketplace becomes much larger than its competitors, the business will eventually drain away from the smaller markeplaces and migrate to the larger marketplace. However, unlike in an exchange where it is practically impossible to dislodge a dominant player, it is relatively easier for a competitor to dislodge a dominant marketplace. How so?

For a small exchange to dislodge a larger exchange, it essentially has to convince a large number of participants to move from the large exchange to its smaller exchange. In fact, to beat the larger exchange, it literally has get enough people to move over so that it becomes the larger exchange. In other words, the strategy for a smaller exchange to beat a larger exchange is to become the larger exchange. This is going to be difficult, because participants of the larger exchange derive higher value simply because it is the larger exchange. It is difficult to come up with a proposition to get them to switch over.

However, for a small marketplace to dislodge a larger marketplace, it only needs to convince one group of participants to move over. Once it has done this, it can count on the self-reinforcing feedback loop to draw in the other group of participants. The participants know this too, and they may be willing to bet that the market owner will be able to convince their group peers to move over. For example. they may believe that the market owner has the clout/salesman ship to bring over lots of their group peers. The hurdle to overtaking a large competitor is lower than in the case of exchanges.

Signs suggest that eBay is a marketplace, not an exchange.

Although I have no figures to back this up, it looks probable to me that the bulk of today's eBay users are not traders. Rather they are divided into two groups of users: buyers and sellers. It appears that more and more of the trading on eBay is between people who specialize in selling (such as the eBay Power Sellers) and people who visit eBay only to buy/hunt for bargains (i.e. buyers).

If this is true, it would explain why eBay is trying to move away from its "flea market, swap-meet auctions" format to a more commercial "buy it now" format with fixed prices and store fronts. This look-and-feel transition, if true, signals that the underlying economics of eBay have changed. This change of format is not simply a cosmetic matter, or a matter of catering to the changing zeitgeist (which is what retail and fashion businesses have to do to stay relevant to their customers). (Even if the underlying economics are exchange in nature, eBay's current moves towards a marketplace business model means that the underlying economics will eventually become marketplace economics)

The competitive landscape - Amazon Marketplace.

If indeed eBay is being used as a marketplace, then it susceptible to competition from Amazon, in particular the Amazon Marketplace which was launched in 2001.

While eBay does seem to be orders of magnitude larger than Amazon (2007: eBay Gross Merchandise Volume of USD 59.3b, compared to Amazon Revenue of USD 14.8b), Amazon does have very strong mindshare with buyers as the "defacto place to buy things online". Amazon's mindshare with the general public will make it possible for them to convince large numbers of buyers to move over. Likewise, their fulfillment capability could also convince large numbers of sellers onboard. This could then precipitate the self-reinforcing feedback loop which could grow their marketplace significantly and threaten eBay's position.

Strategically, the only two Amazon capabilities that eBay cannot counter, is (1) the fulfillment feature for sellers, which can attract sellers on board, and (2) Amazon's mainline store, which can be used to offer loss leaders and coordinated merchandising to bring in buyers. These are two very strong competitive tools that Amazon has in its fight against eBay. eBay's competitive advantage over Amazon (as of now) is its larger size.

This competition is shaping up as a contest between a large bazaar of vendors selling to customers (eBay) and a huge shopping mall with an anchor tenant (Amazon).

The two may be able to co-exist, but only if (a) the e-commerce market is large enough and both players to maintain size parity with each other; otherwise tipping point economics will take over and only one will survive, or (b) each specializes in a different product range, or (c) each specializes in a different type of buyer/seller; for example eBay goes for traders/swap-meet, while Amazon goes for conventional buyers and sellers. Because the online ecommerce market is still growing and its ultimate size and form is unknown, the growth and competitive parameters of both Amazon and eBay is tricky to quantify.

eBay's other businesses - PayPal, Skype and online Classifieds (Gumtree, Kijiji)

While eBay's other businesses are strong, they are still small relative to eBay's overall business.

Nonetheless, they have strong competitive positions, and eBay may end up as a conglomerate with a collection of strong online businesses. Betting on them is a venture capitalist's game, not the game of an investor looking to invest in a running business. I'll take a look at eBay's other businesses sometime, possibly in another post.

Sunday, June 29, 2008

Bank stocks - The Business of Banking, and Investing in Banks

We have recently seen many big-name banks declaring huge losses and raising capital from investors. They look like they are tip-toeing through a credit minefield, and stepping on a mine every few weeks as their portfolio of loans and assets deteriorate and new credit exposures surface. Is this the nature of the banking industry? Are banks just one of those lousy businesses that investors should stay away from?

Not in my opinion.

At its core, the business of banking is the business of (1) attracting customers and (2) managing risks.

Credit Risk Management
Banks, both investment banks and commercial banks, borrow money from one group of people and lend it to another group of people. They make money when the people they lend to are credit worthy, and lose money when they make bad loans or buy bad assets. It's as simple as that. From the perspective of the banking system, the whole system is sound as long as all banks make sound credit risk assessments. If the system as a whole makes a lot of un-creditworthy loans, then the inevitable result is a contractionary monetary base as loans are written off, and money is destroyed via the bank multiplier effect. This is one key reason why governments are loathe to let large banks fail, because a rapidly shrinking money supply would be disastrous for the economy as a whole. I believe this is why the Federal Reserve has maintained a loose monetary policy throughout the credit crisis. Some commentators contend that this stokes the fires of inflation and I have to agree. But I don't see any other choice.

Commercial banks also have to manage the risk of using short term funds (deposits, debt) to fund long term loans. This is a problem that all banks face, and a good bank should be able to manage this risk to an acceptable level. If we look at it from the perspective of the banking system then this risk becomes a non-issue, as long as bank depository institutions continue to be the only institutions allowed to take deposits and make loans. At the system level, all deposits (short and long term) have to remain within the system, and will continue to fund the issuance of loans (short and long term) which are also completely held within the banking system.

Why banks are good investments
The banking system as a whole channels all the money supply in the economy, so the profits from the banking system will generally grow in line with the growth of the money supply. And since the money supply tends to grow in line with economic growth, the profits from the banking system are a core-inflation protected stream of earnings that grow at the pace of economic growth. In a broad based economy with sound fundamentals, buying a share of the banking system is an excellent way to preserve your wealth. The best lowest risk banks, assuming that not all banks are run identically, would be excellent investments.

Risks and Attracting Customers
Unfortunately, it is difficult to figure out whether a bank is managing its risks well. It is very easy for a bank to make loans to un-creditworthy customers, and it is very difficult for someone reading a bank's financials to know when this has happened. An un-creditworthy customer may be able to pay his/her installments for a few years before finally defaulting on the loan. It's not something you can see coming just by looking at the financials. Assessing a bank's credit risk profile is an art. Among other things, we need to look at the bank's business model, operating culture, and compensation incentives. The price of credit is also an integral part of assessing a bank's credit risk profile. A bank can be financially sound if it makes loans to less creditworthy customers, as long as it charges a higher interest rate for each loan. Netted over a large base of customers, the higher interest rates can make up for the higher number of loan defaults. But it is generally difficult to know whether a bank has adequately priced for the risks that it is undertaking, because loan default typically only show up after a loan has aged for a while. Because of this, it is also easy for a bank to underprice its loans to gain market share, without showing signs of distress in the initial few quarters.

Good banks also need to be able to attract customers. But banking is the business of supplying money, which is the ultimate commodity product. A dollar bill from one bank is as good as a dollar bill from another bank. This doesn't mean that banks can't differentiate themselves using clever retailing, marketing, better service and so on. But it does suggest that, as with all commodity businesses, customers will be willing to switch to a competitor if the competitor's price is low enough. Because banks (1) are such highly leveraged businesses, and (2) it is easy for competitors to underprice their product, a bank can easily become susceptible to a loss if irrationally aggressive competitors attract their customers away with unrealistically low prices. The corollary of this is that a sound bank is one that has customers who don't see it as a commodity provider. Identifying a sound bank means knowing which banks have such customers.

Investing in Banks
Investing in individual banks is not for the uninformed. A bank's high level of leverage means that small errors of judgment by the bank can send the bank into a downward spiral. Flighty customers, underpriced risks, bad credit risk management can precipitate a deadly run on the bank.

The premise that regulator will not let a bank fail, and hence a bank is a failsafe investment, is a false one. I think it is true that bank regulators are loathe to let the bigger banks fail, but this only means that they will protect the assets and liabilities of the bank. They will have to let the shareholders be wiped out, in order to prevent moral hazard from creeping in. The experience of failed banks like Northern Rock and Continental Illinois support this observation.

I believe sound banks are an excellent investment, and the recent downturn in the stock market presents a good opportunity to buy into good banks at a good price. The trick is to pick out the good banks from the bad, before the market cottons on.

Saturday, March 8, 2008

Talk at SOC, NUS

Here are the slides from the talk. Just click on each slide to get a close up view.

I really enjoyed talking to everyone and I wish we had more opportunity to exchange ideas. Drop me a note if there's anything you'd like to bounce off me, I'd be happy to share my thoughts. You know how to reach me, or just leave a comment on this page.

Why technologies fail and succeed. A perspective.

Why technologies fail and succeed. A perspective.
Talk at School of Computing, National University of Singapore
March 7, 2008
Presentation Slides (Part 1/4)

Why technologies fail and succeed. A perspective.
Talk at School of Computing, National University of Singapore
March 7, 2008
Presentation Slides (Part 2/4)

Why technologies fail and succeed. A perspective.
Talk at School of Computing, National University of Singapore
March 7, 2008
Presentation Slides (Part 3/4)

Why technologies fail and succeed. A perspective.
Talk at School of Computing, National University of Singapore
March 7, 2008
Presentation Slides (Part 4/4)