A brief 2011 forecast by economic sector

Today we are closing 2010, the year may have had its ups and downs, it has given us lots of topics to discuss, but I firmly believe that looking forward is the best way to go forward so instead of doing the typical year recap I think it is better to go for a 2011 forecast by economic sector. Keep in mind that the following forecasts come from the top of my mind, based on trends, news, events and macroeconomic indicators. Do not expect complex numerical models to calculate earning figures, growth rates and such in this post. We already have lots of so-called experts playing fortune-teller with the economy, most of them with very poor results anyway... 

There is a repeating variable in most of the sectors treated here which I do not have the heart to decide on as of now. This variable is: will the economy depress again in 2011? I expect it not to, but some experts are quite confident on it. In addition it only takes a conflict or some political instabilities somewhere to change a weak recovery into a slump in a fraction of a second.

What can we expect in 2011 in every sector?

Deflating the rare-earth bubble in time

By now everybody, even those without interest in economics at all, will have heard of the commodities rally of the last months. Lack of confidence in the stock markets, in the health of bank's finances, the fear of a worldwide double-dip recession, currency wars, political near-conflicts around the globe... (more on these subjects on future posts) all have contributed to the price rise of most of the physical commodities, specially metals.

Traditionally the classic commodities have been precious metals like gold, silver, platinum and to a lesser extent, palladium. Not only they have an inherent value because of their relative scarcity, but they are also widely used in industry so they serve their wealth reserve purpose very well. Lately we have seen how "purely industrial" metals like copper, aluminum, titanium and molybdenum have joined the classics on this rally with quite interesting growths too. The good part is that all of the commodities named above are obtained from mines spread around the world, which helps to maintain a kind of equilibrium in their valuation. 

Rare-earth elements

This is not the case for rare-earth elements (see Wikipedia), as China is responsible for the 97% of today's rare-earth production. It does not take much to see why this is a problem when these elements are critical in industries like fiber-optics, wind turbines, home electronics (your iphone is included), hybrid cars, magnets in general... even night-vision goggles use them!

Source: wikipedia

Getting away from taxes

Yesterday's Dilbert strip featured in a fun way one of the most troubling realities states are facing lately, losing corporate tax money just when they need it the most. The problem is the state tends to transfer this problem to their citizens without hesitation.

Corporate tax can be quite heavy in some developed countries, so giants like Apple, Google, IBM, Microsoft or Oracle fight it by using some techniques that effectively lower they total taxation. I do not want to call neither of these techniques "tax evasion" or similar because then they would be illegal and what said companies are doing is not. I prefer the term tax shifting because that is what they are doing, they are paying their taxes, but they are doing it from countries with a very low (or inexistent) corporate income tax.

Peak-oil? More like Peak-gas

Everybody talks every once in a while about the much feared Peak-oil, but what we are suffering right now is a different phenomenon. We are seeing gas prices go through the roof worldwide, matching or even exceeding the record prices posted on the summer of 2008 when the Brent crude hit the 145$/barrel mark. 

Since then we have grown accustomed to high gas prices, fueled (pun not intended) by consecutive cuts in production from the OPEC and political conflicts around the world. However, even if we take these factors into account, the demand has fallen so abruptly due to the economic crisis than the barrel price is steady at 85-91$/barrel. The problem is that actual gas prices are not following the price of the oil they come from. But a picture is worth a thousand words:

$/barrel VS $/gallon from 01.01.2008 to 12.27.2010 (All data from US Energy Information Administration)

Introduction

Let me introduce myself properly before I start posting my views and thoughts on the world economy and its current situation. I have been interested in economics since very early in my life, whenever I grabbed a newspaper (those internet-less days) my attention went always to the economy and business section while other childs would rush to the sports section . I must admit that sports was my second option though... Thanks to this early start with economics I found out very soon what my view about it was, so if I had to define it in 2 words it would clearly be economic liberal which, quoting wikipedia, means the following:

"Proponents of economic liberalism believe political freedom and social freedom are inseparable with economic freedom, and use philosophical arguments promoting liberty to justify economic liberalism and the free market. Although economic liberalism can be supportive of government regulation to a certain degree, it tends to oppose government intervention in the free market that inhibits free trade and competition."

I find the above description to be quite accurate except for the part about "philosophical arguments". I do not like philosophical arguments, I am a science man so I prefer numerical and tangible arguments instead.

After this you know what you can expect from this blog, an independent, strong-minded, liberal and free view on what in my humble opinion moves (and sometimes stops) the world, the economy.

PS: I will be making some changes to the design of the blog until I am comfortable with it, please bear with me.