Europe and Antitrust

I have been grossly holding this rather simplistic view that Europe and America has a fundamental difference in which each country approaches anti-trust.  Europe goes after "the big" or "bad" company (Microsoft in many cases) to hold interests of other companies -- in a way clip the feathers of the bird that is flying too high so competitors can participate in the market.  US on the other hand has historically looked at antitrust to ensure that there is no dominant player with extraordinary market power.  One stifles competition, the other protects customers or end-users.  This week Economist cites the paper.  It brings up a couple of good points such as -- with less stringent anti trust laws are more likely to be implemented.  The article mentions that n US there is some sentiment expressed to move towards the eastern way of managing antitrust which is to go after big companies.  This bothers me.  The fact that we got a Microsoft and Apple and Intel in US and not in Europe is for a reason.  Many reasons, in fact.  And antitrust is one component of how things played out.  I wish the policy makers understand that.  If there is one Europeon model that interests me - although I admit I don't know much about it is Swiss model.  It seems lately it has gone through some review/changes/considerations.  I need to do some more digging to find that out.

Derivatives - transparency?

Lot of talk and ink is generated in innumerable proposals to make Warren Buffet's "weapons" of mass financial destruction more transparent.  They are in the center of the credit crisis storm.  One of the most proposed solution is to have a clearing house for derivatives - including most of the OTC stuff.  I am not sure how this will be done from a practical matter.  That's one of frustrations I have reading articles even by as distinguished people like them.  How will this get done?

Market for illegal goods

One of the interesting experiences during early days in University of Chicago was going through Kevin Murphy and Gary Becker's paper in Micro class which very elegantly explains how and why prohibition in the supply side of drugs -- with the goal of reducing quantity creates exactly the right incentives for people like drug suppliers to risk jail to produce more drugs.  Such prohibition creates exactly the opposite results you would want.  Here's another finding (see this post) to the argument that potency of drugs have increased -- meaning innovation is implicitly incentivized to get more bag for the buck. 

Waxman-Markey to take us to 1875?

I can understand positions being taken on matters are debatable as climate change. However, this post was a bit skewed.  To equate that people aspiring for a reduced GHG world is going back to the world described below is non-sensical for lack of better word.

"What, the old DeLorean is up on cinder blocks in the front yard again? In that case you can test drive Waxman-Markey by sailing down to Haiti, because current CO2 emissions are where Waxman-Markey wants America's to be in 2050. Radical environmentalists think such a CO2 level will be heaven on Earth, but the place that has actually achieved it is a nation swimming in bacterial and protozoal diarrhea, hepatitis A and E, typhoid fever, dengue fever and malaria, with 47 percent illiteracy and a life expectancy of 49 years. So excuse me if I remain unconvinced."

I dont know how in world has anyone made a claim that reduction of GHG is going to create a heaven in literal sense.  But the point is interesting in a different way.  The article goes on to claim how bizarre things would be and how our pockets will be run.  My questions is -- Will the costs of electricity increase?  It appears thats what is expected.  If the costs of reducing emissions undertaken by the utility is passed on to the rate payers then what is the incentive for customers to ask the utility to reduce emissions other than pushing legislation through the local congressman.  We know how effective and brisk that process is.  What if the costs are not passed on and it is borne by the holding company similar to how energy trading is handle where a big loss in the wrong trading bet is not passed on to rate payers. Of course, the utility has a point that higher electricity prices will force customers to make a choice whether to continue their NIMBY mindsets for nuclear plants or pay a higher price because the utility has to buy "carbon credits".  Lets see how this unfolds.

Links from Barrons on Energy Investing

Follow what happens in Nuclear: 

Market Vectors Nuclear Energy ETF; Barclays iShares S&P Global Nuclear Energy

Nuclear Street,  Idaho Samizdat, Atomic Insights, NEI Nuclear blog and Fuel Cycle 

EIA;

Companies to follow: Upstream: Cameco, BHP Billinton, Rio Tinto, Us Energy

Construction: USEC, Jacobs Engineering, Fluor, Areva, The Shaw Group,Entergy

On Stimulus

Benn Steil has an interesting commentary in FT. Here it is.

Infrastructure spending

Seems like there are quite a few skeptics of infrastructure spending to improve the economy.  Prof. Zingales and Prof Cochrane's articles are here

http://online.wsj.com/article/SB123249646698200289.html.

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/fiscal2.htm

Electric Grid for Vehicles

When oil is falling below $50 a barrel - it is interesting to read this story.  Will be quite interesting to see how this idea scales up.

Breaking the hiatus

It's been such a long time since I wrote here. While it hardly matters why I didn't, what matters is why back again. With the current financial crises going on and unfolding in ways much unexpected, it is stimulating my curiosity. I am trying to learn and understand the direct as well as spill over impacts of the all the ongoing events and activities taken in this long chain of cause and effect. Writing here helps me do that as it has in the past.

Wirec Revisited

I am still trying to digest all that I witnessed and heard at Wirec 2008. Here are few posts that I found quite interesting. There are two quite opposing points that were buzzing in the conference. BP had a pretty big presence. But all their show including sponsoring the tuesday reception were supplemented with the comment from CEO Tony Hayward that -

"Even though clean tech is growing fast, we all need to be honest," he said during a ministerial plenary session. "The scale that the industry is working at today is not going to have much impact."

I don't necessarily disagree with him. Conventional wisdom is consistent with this statement. But - well there was the counterpoint - Vinod Khosla who insisted that the costs have to come down. He presented at the ministerial panel (which I did not attend) - and highlighted how forecasts have been wrong in the past in predicting technology. In other words, if there are enough network externalities, the snowball effect of adoption of new tech generates the critical mass to lower costs of new tech and suddenly breaks all limits that analysts had predicted before.

His presentations are here. Great stuff!

So in a nutshell, my heart is with Khosla while my head still cannot argue against the BP chief.

@Wirec 2008

I spent the last couple of days in Wirec 2008. Personally, it is heartwarming to see so many people so enthused about energy all conglomerated under one roof. I went around attending few conferences - most notable was hearing GM speak about Chevy Volt. One of main mantras I heard over and over again was to release ourselves from traditional dependence on oil, plug-in vehicles have to come in as a mainstream commodity replacing cars that drive in gasoline. There is a bunch of statistics to prove that. This poses tremendous technical and commercial challenges in interfacing the cars with the grid. For the utility to treat the car as another appliance will not be a trivial matter. But this is indeed fascinating. Imagine automobiles becoming like your washing machine. Of course, unlike washing machine a car is mobile. This means that you will need easy availability of plug in to the grid from any meaningful place. Also, important will be how fast it can charge up. So, coming back to the grid - there will be a need for a new infrastructure. A new platform. A new marketplace. People should be able to come in and go out. How do we allow people to enter this marketplace? How do we gear the technology to support that? How do we make money? Do we create technical restrictions like - you have to have a certain kind of interface to plug in Texas as opposed to New York - or say other kinds of restrictions - electric Mercs or BMWs allowed only. These issues will take a lot of effort and lot of ink to resolve. Regardless, these are fascinating times. One message I take away - the big challenges are known, everyone agrees that something has to be done about it, and that we don't have a lot of time. I will keep probing these fascinating topics. I am excited that these days energy and grid are becoming sexy topics in cocktail parties again!

Ted and Bil

Following the popularity of TED talks, another conference called Bil has emerged. It states that it "loves" TED and wants to be like TED MINUS the $6000 tab that TED charges. It is an "open source" version. Will be interesting to see if this really can match TED.

"Optionality" in Private Equity Deals

This posts highlights how two recent private equity deals - Getty Images and CHC Helicopter are using reverse termination fee structures in their contracts. In other words, if the private equity sponsor refuses to complete the transaction the only recourse of either seller is to collect the reverse termination fee. This is a shift in practice from deals in the past when there was more "certainty" in the deal through specific enforcement on the buyer to actually execute the contract. With credit markets almost dead and financial markets in general having a tough time, raising capital has not been easy and in some sense this shift in PE practice in no doubt a direct fallout. What matters is are these firms valuing the optionality of the contract and if so, how much is that impacting the value of the company being acquired.

Likelihood of Carbon Trading Increasing

If you believe in - where the big boys of Wall Street invest is an indicator as to what the expectation of future growth is - then the likelihood of Carbon Trading has got another yeah. Goldman Sachs announced $14 million investment in APX, a Silicon Valley company that certifies carbon and emissions offset certificates. Read here. It seems like APX will act as middleman which may grow into a NYMEX or another futures type trading market as the emissions trading takes off. It has also got funding from Bechtel Enterprises Holdings, Kinetic Ventures, ONSET Ventures, Technology Partners and Woodside Fund. The space is very small as it is still in infancy. But when cap and trade takes off, there seems to be immense opportunity.

Tax structure in India

1) Qus. : What are you doing?
Ans. : Business.
Tax : PAY PROFESSIONAL TAX!

2) Qus. : What are you doing in Business?
Ans. : Selling the Goods.
Tax : PAY SALES TAX!!

3) Qus. : >From where are you getting Goods?
Ans. : From other State/Abroad
Tax : PAY CENTRAL SALES TAX, CUSTOM DUTY & OCTROI!

4) Qus. : What are you getting in Selling Goods?
Ans. : Profit.
Tax : PAY INCOME TAX!

Qus. : How do you distribute profit ?
Ans : By way of dividend
Tax : Pay dividend distribution Tax

5) Qus. : Where you Manufacturing the Goods?
Ans. : Factory.
Tax : PAY EXCISE DUTY!

6) Qus. : Do you have Office / Warehouse/ Factory?
Ans. : Yes
Tax : PAY MUNICIPAL & FIRE TAX!

7) Qus. : Do you have Staff?
Ans. : Yes
Tax : PAY STAFF PROFESSIONAL TAX!

8) Qus. : Doing business in Millions?
Ans. : Yes
Tax : PAY TURNOVER TAX!
Ans : No
Tax : Then pay Minimum Alternate Tax

9) Qus. : Are you taking out over 25,000 Cash from Bank?
Ans. : Yes, for Salary.
Tax : PAY CASH HANDLING TAX!

10) Qus.: Where are you taking your client for Lunch & Dinner?
Ans. : Hotel
Tax : PAY FOOD & ENTERTAINMENT TAX!

11) Qus.: Are you going Out of Station for Business?
Ans. : Yes
Tax : PAY FRINGE BENEFIT TAX!

12) Qus.: Have you taken or given any Service/s?
Ans. : Yes
Tax : PAY SERVICE TAX!

13) Qus.: How come you got such a Big Amount?
Ans. : Gift on birthday.
Tax : PAY GIFT TAX!

14) Qus.: Do you have any Wealth?
Ans. : Yes
Tax : PAY WEALTH TAX!

15) Qus.: To reduce Tension, for entertainment, where are you going?
Ans. : Cinema or Resort.
Tax : PAY ENTERTAINMENT TAX!

16) Qus.: Have you purchased House?
Ans. : Yes
Tax : PAY STAMP DUTY & REGISTRATION FEE !

17) Qus.: How you Travel?
Ans. : Bus
Tax : PAY SURCHARGE!

18) Qus.: Any Additional Tax?
Ans. : Yes
Tax : PAY EDUCATIONAL, ADDITIONAL EDUCATIONAL & SURCHARGE ON ALL THE CENTRAL GOVT.'s TAX !!!


19) Qus.: Delayed any time Paying Any Tax?
Ans. : Yes
Tax : PAY INTEREST & PENALTY!

20) INDIAN :: can i die now??
Ans :: wait we are about to launch the funeral tax!!!

(Courtesy - Mohit Jain)

Investing in energy stocks

caminoenergy.com tracks energy stocks. It uses some interesting indices - check it out.

Market Reforms in China and India

Much of the growth stories of China and India are attributed to free-market reforms by many. To get a different perspective, here's an interesting article by Prof Bardhan. If you wonder that my Chicago influence will automatically indicate where I stand, then that would be as flippant as reading with the understanding that the author is from UC Berkeley. But jokes apart, some very important issues have been brought forth which are typically lost in popular disourse. Talking about China, he says -

"...socialist control and regulations undoubtedly inhibited initiative and enterprise in both countries, the positive legacy of reforms undertaken in the ‘70s and ‘80s cannot be denied, particularly in China’s recent pattern of state-controlled capitalist growth. China’s earlier socialist period arguably provided a good launching pad for market reform. That foundation provided wide access to education and health care; highly egalitarian land redistribution that created a rural safety net and thus eased the process of market reform, with all its wrenching disruptions and dislocations; increased female labor participation and education that enhanced women’s contribution to economic growth; and a system of regional economic decentralization"

India fares poorly in China's comparison - in equality in land owership, education, and health care. Prof Bardhan attributes this to - "... Chinese are better capitalists now because they were better socialists then!"

Interesting read overall.

Lessig for Congress?

Larry Lessig is considering running for Congress. Is this the best way to propel the change in corruption that he is fighting for.? Would be quite interesting what he finally decides and does. See his video at lessig08.org.

Cancelled Coal Power Plants

The list of cancelled (or on hold) coal power plants is quite a long one. Let's take the plants in Kansas that were cancelled in Q4 2007 and then recently efforts to resurrect the plants are facing tough times. Evidently, most people welcome such a development. The surge in public awareness against CO2 has made the permitting process extremely difficult for plant developers to develop coal plants. Usually, permits are being denied or sent back asking for specific measures to sequester CO2 rather than dumping into the atmosphere.

This is an interesting argument. While I agree with the general swing that greenhouse gases need to be controlled which means better ways to contain CO2, what I am not convinced is the way this ideology is being enforced. People in the industry would say that carbon capture technology which will not allow CO2 to be released in the atmosphere but rather hold it like the way NOx and SOx are being captured are available but expensive. Also, once we capture, what do we do with that. There are some ideas on using it in some mines or oil wells, but not necessarily there is oil well near a power plant which means there is a transfer cost. Add all of that and where do the economics go. The business case simply fails.

Look at any of these bulk options - coal, gas, nuclear - the story finally unfolds to arrive at this point. There are some negative aspects which we had considered as an externality over the last 100 years of electric power industry. Now we want to attach a value and want it to be addressed. But are we willing to pay for it? Paying for a cooler earth for our children is like giving up our own temptation of buying a new car or going for that exotic vacation and building up the inheritance for our children. Are we ready to do so?

One thing is certain - we need electricity. Renewables cannot meet our demands. The only options that are available are coal, gas, and nuclear. How far do we go in giving up today's needs? Are we prepared to face periodic power shortages? Are we aligned for rate increases when utilities go for their next rate case filing? Are we ready to pay that extra cost when cap and trade comes into effect. Or, a possible carbon tax passed onto us. We have to wait and see - how much of the arguments placed forth in these cancellations are knee-jerk rhetoric and how much is real change in societal perception.

Microsoft's Bid on Yahoo

I have been having very interesting conversations with friends and colleagues over the last few days on Microsoft’s unsolicited takeover bid on Yahoo. Many among us believe that this was not a surprise at all – just a matter of when. We all know the cat is out of the bag. The 62% premium bid has been announced. Others argue that it smells a la Time Warner – AOL – does not make business sense and doomed for failure.

I believe it makes good business sense. And my reasoning is pretty much what Microsoft has laid it out – nothing ordinary. It is about time that they did something disruptive to compete with Google. Without a shade of doubt Google has been dominating the $8 billion paid search advertising space which is supposed to grow at 28% to $11 billion. That’s too big a pie for even the “blue monster” to ignore. Other internet players like Yahoo have so far been unsuccessful in challenging Google. Yahoo repeatedly missed opportunities that Google has grabbed. Whether it is with decent ad space monetizing models or with key acquisitions like Doubleclick. There seems to be another strategic element to why Microsoft is concerned. Google has been quite successful in expanding its application scope to create many more avenues to pump in advertisements. Take for example, Google aps. Not very popular as yet, and miles away from the power and sophistication of Microsoft Office functionalities, yet going forward, the fact that it is free and is accessible from anywhere (need internet connectivity) might attract people using these aps. Once it creeps into people’s usage, Microsoft will find it difficult to get users switch back to Microsoft products like Office. Who knows more than Microsoft on how easy it is to get people switch applications. Simply put – Microsoft may just quite end up on the wrong side of the table this time. It is prudent to think about an alternative business model and how to capture internet dollars.

So what are the key uncertainties or challenges that Microsoft should be looking at provided merger with go through. Here’s what I think.

1. Merging two very different organizations. 14,000 employees in Yahoo will be a part of the 80,000 existing Microsoft force. I am told by friends that the incentive structures are different, day to qay work culture is different. Yahoo, many believe, has a flavor of a startup while Microsoft is a large bureaucratic (in many ways). Will people like it? Well, right now – people are skeptical. Microsoft has to handle this carefully.
2. Cannibalizing its own business. If Microsoft uses the internet as an alternative platform for all the good things that it has been doing on top of Windows, it would be interesting to see to what extent and how soon they cannibalize their own businesses and cash cows and venturing into new technology before someone else starts doing so. (Skeptic econ friends of mine are smelling sunk cost fallacy here)
3. Getting more eye balls. As any e-business guru would say, “It is all about eye balls.” More eye balls translate to more ad revenues. So will Microsoft/Yahoo combine shift be able to divert people from using Google? Remains to be seen.

An aside: Nicholas Carr's article on Google in Strategy + Business is worth reading