9/11 Remembered

I have shared with some of you my experiences of 9/11.   For those who I haven't, I will do here.

September 11, 2001 was a very clear day, similar to today in the northeast.   There wasn't a cloud in the sky.   I worked for Instinet Corporation at the time.  We had a correspondent clearing division that was located on the 15th floor of the North Tower.   I had recently moved to that division a few months earlier.

As my habit, I usually got to the office just before 8:00AM.   That day was no exception.   I was just talking on the phone discussing getting tickets to a West Point football game in October.   Just as I hung up the phone, a very loud sound resonated through the floor and the building began to sway.   It seemed at the time the floor moved 4 or 5 feet in one direction, and then back to it's normal location.   I looked out the window of my office and saw debris falling from the sky.   I had no idea what happened, but memories of the bombing in 1993 came to mind.   Seemed strange to see the debris though.

The few of us in the office left their desks and congregated in a common area.   One woman said, stand in your doorways, you will be safe.   Now that was just plain stupid.

We made our way to the stairwells and started the orderly exit out of the building.   At about the 10th floor, the flow stopped.   That was the first time I ever feared for my life; being stuck somewhere with the anticipation that something bad could truly happen that was outside of my control.   I found a door out of the stairwell that opened into the 10th floor.   I asked the security guard what he knew.   He said a small private plan crashed into the building.   That seemed to relieve me a bit.

I made my way back to the stairwell and miraculously the traffic began to move downward until we finally made it to the lobby.   I still remember passing a NY fireman who was making his way up the stairs with full gear, most probably never to come back down.

The lobby looked like a disaster scene.   The windows were blown out, water on the floors, and huge amounts of debris in the plaza.   We walked single file out of the lobby through the Vista hotel next door until we finally made it to West Street.   I met up with my friend Lou across the street and we contemplated what to do.    As we talked, I heard the roar of a jet and looked up at the South Tower that was just across the street.   My first thought was that an Air Force fighter jet was flying over to inspect the damage.   But I could see the outline of a grey commercial jet, engines roaring, fly directly into the building overhead.   Our first instinct was to run.   And we ran as fast as we could toward the Hudson River until we though we were safe from the falling debris.

The rest of the day was pretty much a daze.   Lou and I walked around downtown trying to figure out what happened, and what was happening.   Every few minutes we looked up at the Trade Center towers wondering how they would ever fix the gigantic holes that were now in the building.   Little did we know that job would never have to be done.

We made our way to the Staten Island Ferry just as the first building came down, and could finally see daylight again when we were half way across the harbor.   We found refuge in a Staten Island hospital office due the generosity of a man we met on the boat who worked there.   Lou called a friend of his who lived in SI who offered us a place for the night.   The next day, we both finally made it home.

Anyone who was in New York during that time can remember the fear and uncertainty that engulfed the city.   Anthrax scares and fear of more bombings made us all very uneasy.   Overtime, the fear subsided and we got back to our business.   But for that one day in September, life stood still.

July Trade Deficit and Gross Domestic Product

As many of you know, the July Trade Deficit numbers were published by the US Census bureau yesterday.   While many of these numbers were reported in the news,  I wanted highlight a few facts.

1. The total trade deficit for goods and services decreased by 14% from June to July
2. The total amount of the change was due to a 12% deficit decrease in goods.   Services remained unchanged.
3. Imports of goods and services each decreases in total by 2% each.   Exports of goods increased 3% while services remained unchanged

At an aggregate level, this indicates that the US imported less from other countries from the previous month while increasing the amount exported.   This is a good trend. 

As I started to look at the trade balance numbers, I wondered about how important our trade deficit is to our overall economic health.  Conventional wisdom would say that it is always better to be providing more goods to the rest of the world than you import.   I might argue that parity is probably the best thing. None the less, I think it is important to understand how big our trade deficit is compared to our overall Gross Domestic Product.

For those of you that don't know what GDP is (and I didn't really understand it either), it is defined as the  amount of goods and services produced within a country in a calendar year.   GNP is measured a few ways, but the most common way is based on the 'consumption model.'    Economist measure all the goods and services consumed by individuals and businesses, all residential and non residential fixed investments,  total goverment spending on both the federal, state, and city levels.   Subtracted from this number is the net trade deficit.   This is done to back out goods consumed in this country but produced elsewhere.

Our current GDP is about $14.5 trillion.   Some interesting components that make up this number:

Durable Goods.   This includes autos, household items, recreational items, etc.   GDP $ 1.07 Trillion or 7.5% of the total

Non Durable Goods.  Items such as food, clothing, gasoline, and other energy products.   GDP $2.3 Trillion or 15.8%

Household Consumption Services.   This includes non mortgage housing expenses, healthcare, financial services and insurance, transportation services.   GDP $6.6 Trillion or 45.5%.   Interesting to note that health care expenses represents 11% of GDP.

Non Profits.  Total consumption of households of Non for Profit organizations services.  GDP $265 Billion or 1.8%

Fixed Investments by Businesses.   Investments in factories, equipment, buildings, and transportation.   GDP $1,406  or 9.8%.

Residential Fixed Investments.   As the name implies, individual's investments in their homes.   GDP $358 Billion or 2.5%

National Defense.   $812 Billion or %5.6

Federal Government, Non Defense.   $393 Billion or 2.7%

State and Local Government.  $1,786 or 12.3%

And finally, the total amount of Net Imports backed out of our GNP is $563 Billion or approximately 3% of our GNP.   The implication I take from this is that our economy generates $14.5 Trillion of consumption/production each year, but of that only 3% of those goods and services we consume are coming from overseas.   Seems like a fairly paltry number given all the hype about our deficit and the anti 'Made in China' sentiment we are constantly hearing about.   Can this be right?

On-Line

Last night during dinner, my 15 year old son and I started talking about the on-line games that he plays.   As he described the on-line world that so captivates him and the others in his age group, I felt like a technology and social neophyte.   The world that is represented with net based games made me wonder just what the world is going to be like when kids of his generation reach adulthood and are the ones running the world.   During my trip to Indianapolis over Labor Day weekend, my friend Mark and I reminisced about how we spent out time as kids playing basketball, tennis, and music.   We spent our time with each other in the physical world.  But today, it seems like the majority of the social interaction between kids now takes place in a virtual world with people they have never met.   Hours and hours of time spent inside games that present mental challenges, adventure, fantasy, and other attributes that people of my generation probably have very little understanding of.

It is easy to say, as previous generations have, that kids 'now a days' just don't have the social skills to develop into productive human beings.   They are being tarnished by their pastimes.   I suspect this is not the case, but it does make me think what the world will be like in 30 years given how these young minds are being influenced by their recreational activities.  


The future will be an even more of an on-line world.   Buying goods and services over the internet like we do today is just the beginning and serves as a teaser of what is to come.   Finding any fact about any subject in a matter of seconds, like we can  today with Google, is an incredible technology achievement  and makes our world smaller and our people more educated.   Social networking like Facebook, Linkedin, and Match  has make it easier to keep tabs on people we know, and to meet people whose paths we would never have crossed.    Having access to any news when you want it, regardless of it's bias,  makes our world smaller, gives us a more global understanding,  and has the potential to make people more understanding of each other (ok, maybe that is a stretch).


The online world does have it's dark side.   It is sad to think that pornography is the largest revenue generator on the net.   Certainly combined with the fact that young people spend so much time on-line, will they be able to establish meaningful and loving relationships when their social and sexual needs are satisfied by the Net.   I can't imagine the impact of this.   We marvel at the achievements of Google, but as they continue to grow, more and more of our personal information is kept in the millions of computers operated by the company.   Our emails, phone calls, bank and investment records, and our personal preferences and interests represented by our on line searches.  What is the impact of this moving forward?


During diner last night, my son and I hypothesized about the next major conflict between countries.   He recognized that wars will be fought, not with guns and missiles, but with silicon.   Countries exploiting computer networks and software to attack power grids, financial systems, communications, and other public and private utilities to cause havoc, confusion, and hardship for the citizens of it's adversaries.   Will nuclear weapons even be necessary to resolve conflicts between nations?    This seems like an on-line computer game, doesn't it.

Darwin and Hummingbirds

Self interest seems to be the rule of the day.   And it probably has been  from the beginning of time.  Religious and spiritual disciplines preach tolerance and love for our neighbors.  That love for ourselves and the people around us is the way we should live our lives.   And it all sounds good and right to me.

And as I sit on my deck drinking my morning coffee, I watch the continuing drama with the hummingbirds.  I love watching the half bird, half bug animals hover around to the many feeders I placed on the deck.   First there was one, then two, and now three.   As a bird comes to the feeder, they cautiously look around to see if they can safely drink without being attacked by one of their colleagues.   If lucky, they get 5 seconds before another comes swooping in to attack and intimidate.   This Darwinian drama continues until the sun goes down.

Is tolerance and love for our fellow man only applicable if ones survival is not threatened?   The hummingbird needs to eat or die.   Do the herds of antelope in Africa or the schools of tuna in the Pacific work and live together peacefully because it is their way of surviving?   Do nations and races create ideologies that bond their societies together as a way of protecting themselves from other races, allowing them to survive?   Is a world of plenty for all the only way we can achieve peace and love?   I wonder... I have more than enough feeders for all the hummingbirds in Ridgewood.

Seems to me that self interest, honesty and directness is the only way to achieving understanding, and eventually for defining behaviors that are in the best interest for all.   People and animals quickly know the rules and adapt in ways that assure their survival.   If they don't adapt, they die.

The Power of Fear

When I went to Salem, Massachusetts a couple weeks ago, I had the chance to learn a little about the witch trials that took place there.   As I mentioned in an earlier post, it brought to mind that conventional wisdom can sometimes be a very dangerous thing.   As many of us know, fear is probably the most dominate emotion that controls our lives.   Our fears of rejection, failure, the unknown, and sometimes even success, can lead to behaviors that limit ourselves from realizing our true potential as a race and can cause societies do irrational things to alleviate that fear.   And do the leaders of societies recognize the power of fear and use it to manipulate its people by defining a convenient conventional wisdom?

Below is a brief snip from wikipedia that describes the initial events of the Salem witch trails.

In Salem Village in 1692, Betty Parris, age 9, and her cousin Abigail Williams, age 11, the daughter and niece (respectively) of the ReverendSamuel Parris, began to have fits described as "beyond the power of Epileptic Fits or natural disease to effect" by John Hale, minister in nearby Beverly.^[13] The girls screamed, threw things about the room, uttered strange sounds, crawled under furniture, and contorted themselves into peculiar positions, according to the eyewitness account of Rev. Deodat Lawson, a former minister in the town. The girls complained of being pinched and pricked with pins. A doctor, historically assumed to be William Griggs, could find no physical evidence of any ailment. Other young women in the village began to exhibit similar behaviors. When Lawson preached in the Salem Village meetinghouse, he was interrupted several times by outbursts of the afflicted.^[14]

The first three people accused and arrested for allegedly afflicting Betty Parris, Abigail Williams, 12-year-old Ann Putnam, Jr., and Elizabeth Hubbard were Sarah Good, Sarah Osborne, and Tituba.^[15] Sarah Good was homeless and known to beg for food or shelter from neighbors. Sarah Osborne had sex with her indentured servant and rarely attended church meetings. Tituba, as a slave of a different ethnicity than thePuritans, was an obvious target for accusations. All of these outcast women fit the description of the "usual suspects" for witchcraft accusations, and no one stood up for them. These women were brought before the local magistrates on the complaint of witchcraft and interrogated for several days, starting on March 1, 1692, then sent to jail (Boyer 3).

Other accusations followed in March: Martha Corey, Dorothy Good (mistakenly called Dorcas Good in her arrest warrant) and Rebecca Nurse in Salem Village, and Rachel Clinton in nearby Ipswich. Martha Corey had voiced skepticism about the credibility of the girls' accusations, drawing attention to herself. The charges against her and Rebecca Nurse deeply troubled the community because Martha Corey was a full covenanted member of the Church in Salem Village, as was Rebecca Nurse in the Church in Salem Town. If such upstanding people could be witches, then anybody could be a witch, and church membership was no protection from accusation. Dorothy Good, the daughter of Sarah Good, was only 4 years old, and when questioned by the magistrates her answers were construed as a confession, implicating her mother. In Ipswich, Rachel Clinton was arrested for witchcraft at the end of March^[16] on charges unrelated to the afflictions of the girls in Salem Village.

The people of Salem were fearful of the uncontrollable behavior of the young girls and the possibility of it spreading to others in the community.   Something had to be done.  Because the science of the day could not explain what was happening, the community accepted the explanation that witchcraft must be the cause, and the only way to eradicate the problem was to accuse woman of some mystical powers that were being used to threaten the town.   These 'witches' had to be eliminated.

Was this story created for economic and control reasons?   Did the land that some of these 'witches' own revert to others if convicted?

I look at the controversy over the Ground Zero Mosque and the anti Islamic sentiment surrounding it as a similar situation.   Most people in our country don't understand Islam and the people that practice it.  They think that the 1.6 billion Muslim people on our planet are terrorist and are fearful that any tolerance toward this religion is a threat to our survival.   The images of WTC only reinforces that.   Fear is causing people to act irrationally.    Is there a subliminal resentment that our economic woes are caused by the Islamic world because of our high reliance on their oil?   Could the mood swing to such that we begin to believe it is our moral obligation to 'take over' these countries to free the world of such vial people... and maybe get control of the oil.

The New Einstein

Every hundred years or so, someone comes along that truly changes the world.   Someone that makes a contribution so significant that mankind is changed forever.   It seems like we're due.   We have our revolutionary figures in the arts, politics, and to some extent business.   We can list them all, but the hero I am envisioning hasn't showed up yet.

On a planet of many billions, we know they are out there somewhere.   Studying physics in one of our premier universities.   Maybe it is a young inventor/business person in the mold of Thomas Edison that is still developing ideas and thinking of how to make it a reality.   Maybe this person hasn't been born and won't be with us for another generation or so.   But this world needs them more than most of us think.

My last couple posts were articles about the uncertainty of the world economic climate and green energy.   The article about green energy made the point that the cost of producing environmentally friendly energy is too expensive to be mainstream.   Another post highlighted that 42% of our trade deficit is related to energy and transportation.    I think most of us believe the dangers from carbon based energy is a danger to our planet and the long term viability of mankind.

So who is this new Einstein?   They maybe is from India, China, or any other country on our planet.   It could be a woman.  Their passion will be to develop the science that leads to the engineering, business, political, and environmental breakthroughs that harness the energy in our universe in a way that safely helps man continue his inhabitation of the planet earth.   This science will be used run factories, homes, vehicles, and cities.  The countries that harness and develop this technology will be the new global leaders.   They who own the energy, will own the world.

No doubt some of our world's brightest minds have been working on this endeavor.  It is evident in the statistics about how much of the energy in the US is derived from renewable sources.   But the percentage needs to increase from 7% to 100%.    The next Einstein, or Edison, or Ford will be the one that makes this possible.   And it needs to happen soon.

Rick

Clean Energy. Why we are not using it.

From sfgate.com

The United States expends a lot of energy studying green energy. There's no shortage of ideas. For example, San Francisco considered installing giant turbines under the Golden Gate Bridge and harnessing tidal power to generate electricity. There are all kinds of research projects, coalitions and advocacy groups touting renewable energy, but the country is still heavily reliant on fossil fuels. Only 7% of energy consumed is from renewable sources. So why haven't we made more progress and what can be done to change the numbers?

IN PICTURES: Top 10 Green Industries

It's Too Expensive to Produce. The total cost to research, build and operate new green energy plants combined with storage and transmission expenses is significantly higher than traditional coal burning plants. According to the U.S. Energy Information Administration, the average cost of solar power is almost four times as much as traditional coal burning electric generation. The costs are difficult to compare due to the widely disparate nature of individual technologies but the net result is that startup costs are steep.

The U.S. government is attempting to jump start green energy projects through the American Recovery  Reinvestment Act of 2009 by allocating $16.8 billion dollars for energy conservation, research and development. The bill includes everything from grants to tax credits to encourage green energy activity.

Most projects have a long-term horizon, so results are not immediately available.

Eco-investing has been around for a while now with green mutual funds and bonds available to both individual and institutional investors. Private equity dollars fund the green technology industry through venture capital firms like Kinetic Ventures of Atlanta. Nonprofit organizations also supply grant money for emerging technology that enables the production and conservation of energy. So, the money is flowing in from multiple sources. (Learn more about green technology in The Future Of Green Technology Investing.)

Which Green Energy Source Is the Best? The local environment determines whether wind, hydro power or solar energy generation is feasible. The availability of fuel, technology and transmission are factors in the long-term success of a new energy project. Some of the most efficient and economical energy solutions combine energy sources. Also, the local government's willingness to provide tax incentives has a large impact on the costs.

Solar photovoltaic (PV) cells, which use solar panels to directly generate energy are popular for individual buildings or small geographic areas, but large scale use is expensive. Solar energy used to heat liquids that power large electric plants is actually less costly. Sunlight can be inconsistent, so solar is often used in conjunction with other power sources.

Biofuels have been around for a long time and they are the least expensive renewable energy source. One of the fastest growing segments was ethanol, aided by the Environmental Protection Agency's (EPA) Renewable Fuel Standard which requires fossil fuels to be mixed with a minimum amount of bio-fuels when they are transported in the United States. The regulations attempt to reduce greenhouse gases and increase the use of clean energy.

Wind energy requires a certain amount of sustained wind speeds to be effective. Huge wind turbine fields in various parts of the country produced 1.3% of the electricity in the U.S. in 2008. New technology for storage and transmission make wind power cheaper than solar, but it is still 50% more expensive than coal-powered electrical plants. Offshore turbines are almost twice as expensive. (Wind and solar energy can be used at home. Find out more in Taking Your Home "Off The Grid".)
Hydro power and nuclear power cost about the same amount. Both are more expensive than traditional electric plants and environmental issues plague both. The transportation and long-term disposal of nuclear fuel is remains a concern for nuclear plants. Hydro power poses a threat to wildlife.

Renewable Energy is Really Hot It is politically correct and even "cool" to use green energy. Businesses, governments, celebrities and anyone else gains immediate recognition for buying, using or promoting renewable energy. The economic consequences are serious. Increasing global demand for energy is creating a sense of urgency for the United States to produce domestically generated renewable energy. It is not just an economic concern, but a political one, as oil rich countries assess their future.

The Bottom Line
The reason we are still dependent on fossil fuels for energy is about as old as the fossils themselves. A complicated mix of costs, technology and environmental issues means no one source is best. The diverse implementation of energy sources is a positive step toward energy independence and sustainability. (To learn more, see 6 Reasons Nations Don't Go Green.)

Catch up on your financial news; read Water Cooler Finance: A Diving Dow And Rotting Eggs.

Original story - Green Energy: Why We're Still Not Using It

Copyright (c) 2010 Investopedia ULC. All rights reserved. Investopedia.com is a Forbes Digital Company.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/08/25/investopedia46566.DTL#ixzz0xeDJw2if

Weak Data

Tough economic news this morning.  

Orders for durable goods increased 0.3% in July against average forecast of 3%.     Excluding transportation, orders fell 3.8%.   This is an indication of slowing down of demand for US Manufacturing.

New home sales fell 12.4%.   Low interest rates and lower housing prices are not enough to get people to buy homes.   An indication that people are fearful for their jobs, if they have them.  

Without jobs, people are going to be cutting back on spending leading to decreased demand for goods.   Where are the jobs going to come from?

http://www.ft.com/cms/s/0/1d1dc496-b051-11df-939d-00144feabdc0.html

Back

This is a personal note about my trip through New England last week with my friend Cecilia.  Our adventure started where Routes 17 and 287 come together in Mahwah, New Jersey and we made a 1,300 mile loop through a beautiful part of our country; one that I don't know all that well.

We drove to Saratoga Springs, took the back roads to Lake George, and found a ferry that took us to Vermont. Serendipitously, we used our GPS to find a Bed and Breakfast gem ouside of Burlington appropriately called Hidden Gardens.   Tucked away in the middle of nowhere, this place had acres of gardens tucked away on a wooded hillside that one could explore for hours.  http://thehiddengardens.com/


The next day, we made our way across Vermont, stopping in Montpelier and had another breakfast at a local diner where we were served by a waitress who was quick to point out that she gave up her  executive job to be there.   Also in this charming town we managed to pick up a parking ticket because of our lackadaisical approach to parking meters.    The afternoon drive brought us to Mt. Washington where we took the Cog Rail train to the top.   The weather was spectacular and Cecilia was so blown away by the majesty of the mountains.    After stopping at just about every place we could find, we finally found a historic hotel in Littleton, NH that was built in the mid 1800's that was visited by presidents all the way back to Ulysses Grant.   Littleton seemed like a very tired town.

The next leg of our adventure took us on a delightful drive through New Hampshire and Maine to Bar Harbor and Acadia National Park.  The beauty of Cadillac Mountain, Thunder Hole, and a late day cruise through the harbor made for a very relaxing and enjoyable day.  Seeing bald eagles, seals, lighthouses, rocky cliffs, and the marine layer flowing over the little islands was truly breathtaking.    Walking through the quaint town of Bar Harbor was highlighted by tasting the best Cookie Dough ice cream sampled by yours truly to date.

We started our trek back home with a beautiful drive down the Maine coast.   As we drove, we often spotted interesting things to take pictures of, and turned around to capture them.   Lunch at an organic cafe in Camden that served ridiculously good brownies and treats fueled us for the afternoon drive.  Our intended resting stop that night was Gloucester, Massachusetts, but after losing the accommodations battle, we found our way to Salem where we stayed in a wonderful and historic Inn next to the Witch Hunt museum on Washington Square.   While Salem was very historic and interesting, I think the thought of witches gave us both the creeps and reminded us of how dangerous conventional wisdom can sometimes be.

Our final day included a drive through Marblehead, the Big Dig tunnel in Boston, and lunch in Newport.  On the way home through Rhode Island, we found a driving range that Cecilia insisted we stop at so she could work on her chronic slice, which she seemed to cure.

All in all, it was a great trip.   It is good to get out of the congestion of New Jersey and enjoy the beautiful countryside we have in this part of the country.   As usual, I go through the fantasy of imagining living in each of the beautiful spots I visit.

I just realized that the word business probably comes from the word busyness.    Maybe we should be less busy, and more thoughtful.

News Flash - China Overtakes Japan as World's Second-Biggest Economy

As reported on Bloomberg this morning.  
China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower.

Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said.

China led the world out of last year’s global recession with an economy that’s more than 90-times bigger than when leader Deng Xiaoping ditched hard-line Communist policies in favor of free-market reforms in 1978. The country of 1.3 billion people will overtake the U.S., where annual GDP is about $14 trillion, as the world’s largest economy by 2027, according to Goldman Sachs Group Inc. chief economist Jim O’Neill.

A couple interesting points/statistics from the rest of the article are snipped below:

1. China overtook the U.S. last year as the biggest automobile market and Germany as the largest exporter
2. The nation is the world’s No. 1 buyer of iron ore and copper and the second- biggest importer of crude oil
3. China’s economy is cooling as the government trims credit growth from last year’s record $1.4 trillion and discourages multiple-home purchases to cool surging property prices.
4. The country’s property market is beginning a “collapse” that will hit the nation’s banking system
5. Four of the world’s top 10 companies by market capitalization are from China, including PetroChina Co., Industrial & Commercial Bank of China Ltd., China Mobile Ltd. and China Construction Bank Corp.
6. Since introducing free-market policies, China has lifted 300 million citizens out of poverty, according to the United Nations. The country remains a developing nation, with its per capita gross national income ranked 127th in the world at $2,940 at the end of 2008, behind Angola and Azerbaijan, according to the World Bank.

Please be sure to read the entire article in the link:

http://www.bloomberg.com/news/2010-08-16/china-economy-passes-japan-s-in-second-quarter-capping-three-decade-rise.html

The United States, Inc.

Sometimes I wonder whether the United States of America should be called United States Incorporated.   We all know that if a company is to be successful and provide economic value to it's employees, it needs to sell goods and services to customers for a price that is higher than the cost of creating them.   This is profit and prosperity.   A company that creates goods, but at a cost higher than it can sell them is known as just another bankruptcy. 

Can a similar analogy be made for sovereign economies?  If we look at a nation and see that it consistently spends more money on goods and services acquired from other countries than it sells to those countries, can we assume that country will not be in business very long?  Over time, capital will slowly move to the countries that are the best producers from those that aren't.  Unemployment, lower standards of living for it's citizens, security issues, and a host of other problems can only result.    It seems to me that the balance of trade is the equivalent of the corporate earnings report.

Each country's balance of trade is made up of the buying and selling of Goods and Services.  Goods are defined as tangible objects that are purchased that provide economic value to the acquirer, while Services are defined as activities that the gives the acquirer economic value.   The purpose of this post is to look at the June 2010 Balance of Trade data for Goods and see our economic earnings report.    (The source of the this data is published on the US Census Bureau website - http://www.census.gov/foreign-trade/data/index.html

In June, 2010,  the US imported $60 bln more than it exported.  The following chart and graph show the top 5 categories of goods that made up the deficit, in terms of dollar value.

Represented as a pie chart, the data looks as follows:

Of a trade deficit total of $60 bln, Oil, Gas, and Transportation Equipment represents about $25 bln, or 42% of the deficit.   The US buys its vehicles and the fuel to run them mostly from other countries.    It would seem that a policy of creating incentives to develop world leading alternative energy vehicles has the potential to significantly reduce our dependence on other countries for transportation related goods and improve our country's 'Income Statement.'  

Computers and Electronics makes up a huge percentage of the deficit at 31%.   I believe this is primarily consumer electronics like televisions and cell phones.   What this number also represents is the outsourcing of computer systems manufacturing to others.   Is Dell and Apple designing cutting edge products in the United States, but purchasing all the necessary components like memory and disk drives from other countries?    Do we have the intellectual capacity to design these components as well as our overseas suppliers?  Can improvements and automation of our factories help bring these functions back to the US?   Do the trends we see in manufacturing productivity give us the potential to start bringing this outsourced production back home?  

What else is interesting about these numbers is that all the other product catagories outside the top 5 represent only 8% of the overall deficit.   This seems to imply that there is trade parity across these other catagories.

Another way to look at United States, Inc. is to see what our key products are.   The chart below shows our countries Top 5 Goods product lines. 

Most of the items are self explanatory.   Transportation is an important product for United States, Inc.  Transportation related items, such as automobiles and commercial jets probably make up the bulk of the Transportation Equipment category at 14%.  Chemicals, Machinery, and Computer Equipment make up the other key products.   Re Exports defines the activity of brokering imports from other countries and immediately exporting them.

Conversely, we can also look at the key products we import from other countries.

As you would expect from the Deficit chart. Oil and Gas, Computers and Electronics, and Vehicles are the key products we buy from other nations.

More to follow...

By the way, our top product catagories where we run a surplus in the trade balance are Reexports and Scrap Metal...

Balance of Trade

The commerce department reported yesterday a increase in the Trade Deficiet yesterday to $49.9 billion for the month of June.   As a number, it doesn't look like a very good one, and based on the reaction of the equities market yesterday and today's open, it appears to be a number the market doesn't like.  

Looking at a news article like this doesn't give the whole perspective of what this number really means.   The US Census Bureau website publishes these number historically and can be found on http://www.census.gov/foreign-trade/data/index.html .

I put together the following graphs to see how this number has trended historically.   The first graph shows the historical exports vs imports since 1992. The graph shows a steady increase in the trade deficit over this time period.   It is interesting to see just how severe the 2008/2009 time period was with a sharp decline in trade.   The 2010 numbers are extrapolated from the first 6 months of the year, but indicate a significant rebound from the previous years. 

The trade balance numbers are also reported showing a breakdown between Goods and Services.   Goods are defined as tangible objects that increase the utility of the purchaser.   Services are defined as activities where the buyer typically doesn't obtain the exclusive ownership of the activity, but obtains economic value from the use of the service.   The next graph shows historically trade balance broken out by these two catagories.

The data shows that the US has been an historical net exporter of Services and a net importer of Goods.  

The data in the next graph shows historically the trend with Services.   The graph shows a significant increase in Service exports throughout the last decade.

While it is very tempting to draw conclusions from this data, it  is  probably necessary to look at the components of trade to get a better understanding of good investment opportunities.    It is clear that that the US strength in the global markets lies in the Services sector, which seems logical.   American's ability to sell it's intellectual capital is something that you would expect from a highly educated and productive society.   The fact that we are a net importer of Goods would indicate that manufacturing is a lower value activity that is best supplied by developing societies with cheaper labor forces.   

The arguement that the US has to 'make things' to be competitive is a very popular one.   While the US has shown a strong competitiveness in offering high value services to the rest of the world, the fact that we spend that capital and more on the things we need in this country doesn't leave us with a good feeling about our economic future.   Does the US have to be be more competitive in the Goods sector to get us on an equal footing, or can Services be increased to make up the difference?   Can our Services capabilities be used within our country to do that.

There is much more to the numbers.   More to follow.

http://www.bloomberg.com/news/2010-08-11/u-s-trade-deficit-unexpectedly-widens-to-49-9-billion-as-exports-decline.html

Employee Productivity

An article in CCN Money reports that, based on current statistics provided by the US Labor Department, employee productivity fell by 0.9% in the second quarter.   The author goes on to say that people are burning out, company's need to realize that they need to hire more people to keep productivity levels in check, and potentially to add consumers to the marketplace to fuel demand for more goods and services.   
The actual report from the DLS is here: http://www.bls.gov/news.release/prod2.nr0.htm

Is the author making a populist argument here.   Looking at the numbers in more detail, some things jump out at me.  Manufacturing and durable manufacturing productivity increases were significant on a Quarterly and Annual basis (over 10%), with hourly costs and unit labor costs actually decreasing.    The result of better technology and manufacturing automation?  Are we making progress in becoming a competitive global manufacturer?    Are unions becoming less effective?  What is driving this increase in manufacturing productivity and lower labor costs?   Are people being worked to the bone, or is better technology and automation making it possible to do more with less people?    If this is the case, then that is a good thing for american competitiveness, but where do the factory workers go?   Perhaps this is another case of 'Creative Destruction' as defined by Thomas Friedman.   Lower level jobs being displaced by technology will require workers to get training in new skills that are applicable in more current industries.  

Where are the new middle class jobs.   They are not the old middle class jobs.

Friday's employment numbers

10:30AM

Seems logical that the market tanked this morning on the disappointment on the non farm payroll numbers.  Increase of 71,000 jobs in the private sector, but 143,000 reduction in temporary and census workers.  Overall decrease of 131,000 in jobs.   Not sure how the math is working here, but I am sure there are other numbers/catagories involved.

Equity markets started off with a big drop, but looks to be coming back.  US Dollar slipping against major currencies. 

I think we can say the 71K increase in private sector is good.  These are the jobs that matter.   Is there a time lag between census workers being laid off and getting new jobs?   Maybe.   Too early to say.

Lets see how the markets progress throughout the day after the initial shock subsides.    Maybe the Tradebots will pull us through ;)

A couple points from the last  couple days.   Manufacturing increasing,  Jobs decreasing.   Does this imply more efficiency in our manufacturing capabilities?   This is good if true.   But where are the new jobs going to come from?

6:00PM update

Looks like the market didn't freak out too much over the numbers and recovered to a 21 point loss after being down 150 earlier in the day.   Interesting comment by Alan Siani which seems to reinforce some of the things mentioned in earlier posts.

'For now, companies appear nervous about expanding their payrolls. “Businesses just don’t want to hire,” said Allen Sinai, chief global economist at Decision Economics. “Workers are too costly and it’s very easy to substitute technology for labor.” He added that with corporate earnings rising partly on the back of cost-cutting, employers are reluctant to give up profits. “So while corporate earnings were spectacular,” Mr. Sinai said, “the job market just stinks.” '

Is technology starting to take over for people?  Investment in automation seem to be leading to higher corporate profits with reduced labor requirements.   Where are the investment opportunities with this trend (if it can be called a trend)?   Computer Software, Hardware, Manufacturing automation technology, other?

Washington Post article this am.

http://www.washingtonpost.com/wp-dyn/content/article/2010/08/06/AR2010080600914.html

Followup article later in the day from the New York Times.

http://www.nytimes.com/2010/08/07/business/economy/07econ.html?src=busln

U.S. wheat jumps over 6 percent on Russia export curbs

Thu Aug 5, 2010 9:57pm EDT

SINGAPORE (Reuters) - U.S. wheat futures surged more than 6 percent on Friday, after settling up at the permitted daily maximum in the previous session, as Russia said it would temporarily halt grain shipments because of a drought.

Russia's worst drought on record has devastated crops in parts of the country and caused international grain prices to spike as markets bet that global supplies would be restricted without shipments from one of the world's leading exporters.

Chicago Board of Trade September wheat was up 6.4 percent at $8.36 a bushel by 0150 GMT.

(Reporting by Naveen Thukral)

Today's economic news - Rise in unemployment claims

Rise in unemployment claims was announced by the government today.   Not the sign we were looking for.   The market didn't seem to get to worked up over it.   The critical number is tomorrow when non farm payroll numbers are announced.   Look for some market movement, one way or the other.   

As we all knew, our Blackberry's are not secure

BOSTON (Reuters) - Research in Motion's resistance to giving governments access to its BlackBerry network misses a major point -- authorities could probably hack the data on their own if they want it badly enough, security experts say.

Indeed, a major attack against BlackBerry users by a telecom in the United Arab Emirates employed that very tactic a year ago, according to RIM. Experts say other malicious programs are likely to be lurking around, readying to be sprung.....

I highly suggest you read the whole article via the link below.   It is fascinating and a bit scary that a major corporation deliberately sent malware to it's customers?    Who was behind this one?  


http://www.reuters.com/article/idUSTRE6745L820100805

Manufacturing still expanding

Strong rise in the global equity markets today.   As reported in the NY Times, manufacturing has rose again for the 12 straight month.  While at a slower pace, still a good sign.   The report indicated that manufacturers are willing to hire, which in many peoples opinion, is the most necessary thing for the economy to continue the recovery.   It is very hard to spend when you don't have a job.   I have first hand experience with that now and truly understand the problem. 

It is good to see that manufacturing in the US is growing, in spite of the trend to find low cost producers oversees.   I am not sure what this really means when you look at the numbers in detail, but on the surface it implies more competitiveness.   Something to continue looking at.

The article indicates that there is still weakness in the housing market.   Isn't that a good thing.   With all the overbuilding that occurred during the housing boom due to the sub prime mess, you would think that stabilizing and perhaps decreasing the housing supply is what is needed. 

Referenced article here  http://www.nytimes.com/2010/08/03/business/economy/03econ.html

Slowing growth in Chinese Manufacturing - WSJ (08/01/10)

BEIJING—China's manufacturing activity expanded at the slowest pace in 17 months in July, an official gauge showed Sunday, reflecting that tightening measures introduced earlier this year and growing uncertainty over global demand continued to weigh on the country's economic expansion.


China's official PMI, issued by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, fell to 51.2 in July from 52.1 in June, the third straight month in which it has declined. The reading was also closer to the expansionary threshold of 50 than it had been in 17 months. A reading below 50 signals contraction.

Also, in a statement issued Sunday after a meeting to plan second-half economic policy, China's central bank said it would continue to implement the current "moderately loose" monetary policy while keeping a close eye on changes in the domestic and international situation, including the European debt crisis and monetary policies of major economies. China's economic policy will need to be "flexible" and "forward-looking," the central bank said.

Last week, the People's Bank of China had struck a confident note, saying the country's current economic slowdown is beneficial for long-term sustainable growth, and there is little risk of a "double-dip" recession.

Sundays' statement added to that view, signaling that the PBOC is unlikely to increase interest rates in the second half of the year, said Ting Lu, China economist of Bank of America Merrill Lynch.

Economists said the decline in the widely watched purchasing managers' index also makes Beijing unlikely to take on any new aggressive tightening measures later this year as inflation pressures are expected to ease further.

"The Chinese economy is slowing down due mainly to the ongoing property tightening measures, but the slowdown is clearly not as dire as some expected. We don't think the current situation warrants an all-out fight to rescue growth," said Mr. Lu.

With the outlook for developed economies increasingly murky, investors, executives and officials are closely watching indications of how China's economy will perform, because it has been the one consistent engine of growth in recent years. China's economy is widely expected to surpass Japan's this year as the world's second largest behind the U.S. based on market exchange rates. It came in slightly behind Japan last year.

In an interview published Friday, Yi Gang, a vice governor of People's Bank of China, mentioned briefly that "China actually is already the world's second largest economy." But it wasn't clear what Mr. Yi based the statement on, and neither he nor the central bank elaborated.

China has long been larger than Japan based on purchasing-power parity measures of their economies, but PPP isn't nearly as widely used to rank economies as market exchange-rate comparisons. A decisive reading showing China surpassing Japan in annual gross domestic product isn't likely until early next year, although it's possible China's economy will be larger than Japan's during this year on a quarterly basis.

Despite the economic slowdown, the PBOC will keep continuity and stability of the monetary policy and won't change the annual credit target of new yuan loans of 7.5 trillion yuan ($1.12 trillion) for 2010 while strictly implementing tight credit policies in buying property that were adopted earlier this year, according to a statement posted on the PBOC website.

The PMI data showed that China's new export orders grew last month from June but the growth slowed, while imports declined in July from June, signalling that exports and imports will continue to post lower annual growth in the coming months.

The new export-orders subindex in the PMI slipped to 51.2 in July from 51.7 in June and the imports subindex dropped to 49.3 from 50.4. China's customs is due to release July trade data Aug. 10.

Meanwhile, inflationary pressures likely continued to weaken last month as the input-prices subindex fell to 50.4 in July from 51.3 in June.

—Liu Li contributed to this article.

National Adversity Index - from Moody's published on MSNBC

Interactive: Adversity Index


The Adversity Index measures employment, industrial production, housing starts and home prices for 381 U.S. metro areas and all 50 states
 
The Adversity Index, from msnbc.com and Moody's Economy.com, measures the economic health of 381 metro areas and all 50 states. Each area is in recession, at risk, recovering or expanding. On this map you can explore changes in the four components of the index: employment, housing starts, housing prices and industrial production, each shown as a percentage change from a year earlier. (The change in housing prices will be updated at the end of the quarter.) Roll over a state to see its numbers. Click on a state to see details for its metro areas. Slide left or right to see data for different months. Click play to see all the months. Use the forward and back buttons to step a month at a time.
 
You definitely have to click the link and draw your own conclusions:
 
http://www.msnbc.msn.com/id/29976394/ns/business-stocks_and_economy
 
 
 

Arizona immigration law 2010: As SB1070 takes effect, Mexicans say 'Adios, Arizona'

Article in the Christian Science Monitor this morning discusses the impact of a new immigration law in Arizona that takes effect today.   The Mexico government is beefing up relief shelters in Sonora to help Mexican citizens that are being either deported back or voluntarily returning to Mexico.   The article implies that the number of Mexican citizens that are voluntarily returning to Mexico is higher than what has been seen in the past.   Apparently this law has more teeth.   It appears that the strategy that many of these illegal aliens are taking is to return to Mexico and return to another US state that has weaker immigration policies.

While I appreciate that our country has been built off the backs of immigrants, states in the southwest certainly can't afford the public cost of supporting these people.   I encourage regulation to keep this influx in check and it seems that whatever Arizona is doing should be looked at as a national policy.

the full article here:

http://www.csmonitor.com/World/Americas/2010/0729/Arizona-immigration-law-2010-As-SB1070-takes-effect-Mexicans-say-Adios-Arizona

Electric Car Stocks making move in 2010

Is there a viable business model for electric cars?  Yet?   I sometimes wish the U.S. would really consider the Dannish 'tax and subsidize' model.   Could it work here?    Based on Tesla stock performance to date, it seems doubtful that EV can make it on it's own. 




BALTIMORE (Stockpickr) -- Despite its parent company's financial failings in the last decade, Chevrolet's press conference yesterday announcing pricing on its new Volt electric vehicle reminded America that the auto industry still stands to impress with innovation. The Volt is arguably the most anticipated EV in history, offering to bring zero-emissions and electric efficiency to the mass market.

In yesterday's announcement, Chevrolet announced that the Volt would be base priced at $41,000, before a $7,500 tax credit that brings the cost down to $33,500. The company also plans on making a lease option available for $350 per month. But while GM's offering is the most tangible mass-market electric car out there right now, there's more to the EV market than just the Volt. Here's a look at a handful of electric car stocks that could make moves in 2010.



Rest of article here.

http://www.thestreet.com/story/10819622/1/electric-car-stocks-making-moves-in-2010.html?cm_ven=GOOGLEFI

Teams and Leaders

I usually write in this blog things that interest me in the news, my industry, or other random thoughts.   Today is a post about an important observation about my last job. 

It has been a week or so since ITP has shut it's doors.   I have been doing my part to help our team find a home and continue the great work they have done so far.   It is such a nice thing to see in the business world a situation where a team is created that does truly remarkable things.   Even if things don't work out exactly as planned.  

Thousands of books have been written about teams and leadership.   I am sure I will not cover any new ground.   But it is sometimes good to reflect on a real life situation you have experienced and relate it what you have read.

Great teams can do anything.   The ITP team was excellent at developing and operating financial software.  The team has good leadership, strong technical standards, a passion for excellence, and the commitment to deliver.   The team has the mix of skills, personalities, strengths, and weaknesses that compliment and inspire.  Its members have a respect for each other.   It members often fight with each other over things they are passionate about.   All in the pursuit of excellence.  But it never becomes personal.   At the end of the day, it is a lunch, a beer, or a hallway conversation, that brings the spirit of the team back together, with no animosity, and often times generates good feelings that the pain they may have felt has made them stronger, closer, and more sure of themselves and their teammates that they can truly do wonderful things.

Great  teams have a way of looking at the strengths and weaknesses of its members.   Truly appreciating what each brings to the team, and often times overlooking and neutralizing the inevitable weaknesses.   This I find to be most incredible.     It seems to me that this characteristic is so much motivated by self and team preservation.   The recognition of of the universal truth of human nature.. there is good and bad in all of us and that great teams, made up of average people,  are willing to adapt in ways that take the best in spite of the worst.  

How many teams have we seen that broke apart?   Mostly because of ego and selfish reasons, I would suspect.

Great teams go beyond business obviously.   Baseball, marriages, music groups, religious affiliations.   What are the essential ingredients?   A few that come to mind.

• Respect for each other  
• Respect for yourself
• Commitment to the cause
• Each member plays a necessary role, and does it with competence
• Leaders and members, with the roles understood, accepted, and sometimes challenged.
• Diversity in thought, talent, and temperament

It sounds like a formula, and that anyone can put together a great team.   Maybe great leaders are defined as those that can inspire and build great teams.   Maybe they have the subtle skill to recognize talent and the necessary mix of it to succeed; the ability to manage diverse personalities; can inspire; not afraid to reprimand, and provide the courage to lead through the inevitable challenges that lie ahead.   They have the vision of why the team exists and what truly is their mission.   And can articulate it day in and day out.

Great teams are such a special and elusive thing.    And often times, you may not even know you are part of one.

Letting go.

From a correspondence with a friend about not trying to 'force life.'

"I think of golf as an example. Don’t worry about the score, only the next shot. Don’t fear missing the shot and feel grateful, but not surprised, for one well executed. You will never hit them all perfect…it is the nature of the game. Your opponent is only the course, never the person you are playing. Make sure you are never the opponent. Trust your abilities and preparation. Draw from your past successes as an indicator you can do it. Trust the numbers, and the feeling in your gut. Feel the wind, feel the grass, feel the game. Nothing else really matters. Let the outcome be what it is."

Q2 Earnings Season - Finally Optimism?

A few snippets that I thought interesting in the article.   A view of current sentiment.

Alcoa, the biggest U.S. aluminum producer and the first company in the Dow Jones Industrial Average to report second- quarter results, rose as much as 4.3 percent as sales and profit exceeded analysts’ estimates and the company forecast stronger global demand.    [Does this indicate that US aluminum suppliers are competitive with overseas low cost producers?   How did they accomplish this with our higher labor costs?  I wonder where their biggest customers are?]

All 10 industry groups in the S&P 500 advanced, led by commodity producers and financial firms. [commodity producers... inflation or competitive producer indicator?   Are the financial firms finally getting their houses in order after the debacle?  Where are the profits coming from?]

U.S. stock futures rallied before the start of trading as Greece sold 1.63 billion euros ($2.1 billion) of 26-week Treasury bills at a rate below the 5 percent charged by the European Union for its bailout package, easing concern the nation faces punitive costs to borrow.

Profits for S&P 500 companies are projected to have increased 34 percent in the second quarter and by the same amount in 2010, according to analysts’ estimates compiled by Bloomberg. Intel Corp., the biggest maker of semiconductors, reports quarterly results after the close of U.S. exchanges today. It’s among 23 companies in the index to announce results this week. [34% average.   that is a huge number]


http://www.businessweek.com/news/2010-07-13/u-s-stocks-rise-as-s-p-500-extends-winning-streak-alcoa-gains.html

GSO Capital Partners, the credit hedge fund arm of the Blackstone Group, has raised more than $3 billion for a new fund that will provide financing to distressed middle-market companies.

Is this an economic indicator?   Does this signify a thinking that things will get better?   Financing/ownership of distressed, but well run companies, at favorable multiples, will lead to profits when economic activity finally turns around?

http://www.finalternatives.com/node/13148

Google and China

As reported in the Washington Post.....

You had the impression not too long ago that Google actually had the backbone to stand up to China's goverment.   Saying no to censorship and saying no to being hacked.  

As Google's licence sets to expire, they have now acknowledged that the market is more important than principles.   I admired Google in January.   Not quite so sure now.   

I suspect that there is more to the story.  Washington/Beijing relations?   Quid Pro Quo?   Maybe this decision was out of Eric Schmidt's hands.

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/09/AR2010070902137.html

European exchanges fight rearguard action against consolidated tape

From Finextra this morning.    I had to read this a few times to understand this.   I suspect I still don't.  As in the US, there is becoming a proliferation of execution venues across Europe.    Market data is the blood of the beast and without it, investors are unable to feed their machines with the information necessary to find the the best places to trade.

What does the consolidated tape provide?   Why would the regulated exchanges be opposed to it?  Why are some exchanges forfeiting one of their largest revenue sources; market data?

The  conclusions I draw are:

1. As the name suggests, a consolidated tape is the requirement that all exchanges and execution venues report to a central authority/database the critical information about filled orders that occurred on their venues.   Is other information such as depth of book, bid/ask, size also part of the requirement?
2. A consolidated tape may show investors and traders that best execution quality may not really exist on the regulated exchanges.   The machines will begin to see that the dark pools are really the places to trade and slowly market share will start migrating to the newer venues.  Notice NYSE volumes over the last few years.    
3. Is the 'give away' of market data the exchanges attempt to 'buy' business.   Potentially equated  to a rebate.   If you want access to the whole universe of liquidity, you will have to pay for the market data that drives your machines.   If you trade strictly on the exchange, you may be able to do it cheaper because of the subsidized market data.    
4. I suspect some investors will look at their volumes, opportunity costs, commissions, and other trade cost parameters and see that best execution may cost more than just playing in the familiar exchange playground.   Or maybe not.  

08 July, 2010 - 10:23








European exchanges fight rearguard action against consolidated tape




European stock exchanges are promising to eliminate fees on 15-minute delayed data by the end of the year as they step up their campaign against the introduction of a mandatory consolidated tape for EU market data.




Representing the views of regulated market venues, the Federation of European Stock Exchanges says the introduction of a consolidated tape would neither improve transparency nor lower costs, but would instead "pose serious threats to the competitive framework that MiFID has enabled".




The exchanges are wary of giving up control of a valuable source of revenue at a time when their income and market share is being squeezed by a host of new competitors.




In its statement, the FESE promised to eliminate fees on 15-minute delayed data, support for trade identifier and to make post-trade data available separately from pre‐trade information "at a reasonable cost".




The exchange lobby group also warned of the "unpredictable consequences" for the structure of European markets under a consolidated tape. "Gaming would likely become a fixture of the market and, instead of venues competing on the basis of their execution quality; they would compete in terms of their gaming," says the FESE. "This is not a good outcome for Europe."

The Rich are losing their homes

LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.



Peter DaSilva for The New York Times

A home in foreclosure in Los Altos, Calif., a city where the median home price is $1.5 million.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

For complete article, follow this link. 

http://www.nytimes.com/2010/07/09/business/economy/09rich.html?_r=1

Unified Communications in Financial Technology (IM?)

The call for unified communications is too loud to ignore


28 May 2010

By Thierry Charvet,

marketing director,

Orange Business Services - Trading Solutions

Unified communications sounds complicated. But in principle it is very simple and hinges on two factors. Firstly, a trader must be able to switch seamlessly from one communication channel to another. Imagine an employee is on the phone and decides to speak to a colleague face to face. It involves a simple process of just clicking an icon then the conversation immediately shifts to a screen on a workstation. Secondly, a truly unified communications system will automatically direct the caller to the most appropriate channel. Log off an office network and a call goes through to a mobile - without the need to set up manual call forwarding.

This flexible and intuitive approach to unified communications makes it highly suitable for trading rooms. In addition, it reflects the industry’s shift from a focus on transactional business, which has always been supported by traditional voice and turret based communications. But today, commoditised transactions are largely automated as the focus has switched to instruments. Traders focusing on complex instruments such as derivatives are turning to communication channels such as instant messaging (IM), which are familiar in the mass market, but less so on the trading floor.

From chat rooms to trading rooms

So why are traders turning to a communication channel that originated alongside chat rooms? In fact the reason that IM functions so well is due to it being a great tool for communication at the start of the trading cycle. If a trader wants to find out the price of different liquidity pools from a dozen or more contacts, rather than call each one individually, IM can be used to check who is available while also sending a group message exploring the depth of the market. Equipped with a short list of perhaps three prices, the trader then moves to a traditional voice turret to speak to the shortlist of contacts in person. IM is perfect because it supports communication in real-time or near real-time, rather than email where people tend to respond every hour or so or longer.

In fact IM is the perfect starting point for a discussion around unified communications on the trading floor because it highlights many of the opportunities for traders, as well as offering a strong reminder of issues, including compliance, associated with a new communications channel.

On the one hand, IM offers flexible fast communication. On the other, it also indicates whether someone is available or even the best way of contacting them at any point in time. A truly unified communications solution also enables the end-user to switch seamlessly from one channel to another so that a trader can escalate a conversation from text, to voice or even a video conference. At the same time, IM also supports compliance. This is not just because most systems now record written conversations, but because institutions can better comply with the need to prove best execution under MiFID.

Unified communications is helping the financial services industry evolve beyond a focus on instruments towards a new approach that centres on communities. It helps to create networks and layers of communication that map to day-to-day trades.

A triple win

There are three areas where unified communications has the potential to increase business performance. Firstly there is the opportunity to improve overall productivity, especially if unified communications is integrated with an existing CRM system. In this scenario, a window pops up with the client’s profile, recent spending pattern and risk adversity. Sometimes the challenge is that there is just too much data, but once a system that automatically pulls up the client information needed is utilised, productivity increases enormously.

Unified communications also supports greater collaboration between traders and analysts. Take the example of a morning briefing where an analyst describes pricing trends and advises the sales team on the day’s strategy. With unified communications, the briefing is recorded and automatically sent to those who cannot attend the call. There is no need to send notes or the sound file manually. Time savings as well as better sharing of information can make an enormous difference to sales performances – and the efficiency of analysts.

Then there is the eye-opening potential of unified communications to draw connected people into a real time conversation. Imagine if a trader could be automatically notified when a call that impacts their business comes to a sales colleague, which would enable themto intervene if necessary. That becomes possible with solutions that are on the market today. The transparency of communication that can now be achieved between front, middle and back offices holds immense potential for the trading business.

One of the main strengths of unified communications is that it provides a trader with a single identity that is recognised by their network, colleagues and counterparty organisations. It takes all those identities and passwords and combines them into a single entity – the trader themselves.

By replacing fragmented identities with one, employees on the move can use mobile devices or home landlines to participate in business while still complying with regulations that govern the recording of trading conversations. When a call is diverted away from the workplace, it is still recorded at the turret. Once again, it is a completely seamless and secure process.

Leading the drive to operational efficiency

The good news for the IT team is that a unified communications strategy fits perfectly with the overall trend towards growing use of session initiation protocols (Sip), which have the potential to support every communication channel from voice to video to email. By implementing a solution that supports computer telephony integration, there is an enormous opportunity to simplify infrastructures and drive down costs.



A more simple approach also means that it becomes easier to enforce security protocols and policies, whilst at the same time opening up the door to further operational efficiencies based on distributed networks, server virtualisation and cloud computing.



Whichever way this trading solution is viewed - from the front to the back office, from the boardroom to the IT team - unified communications answers many of the critical challenges that face trading institutions in the early twenty-first century. It offers more transparency, clearer messages, greater accountability and lower costs. Put simply, it is an essential platform for success in the coming decade and beyond.