Bringing the Buzz Back to the Café

Once they plotted revolutions, now they're typing blogs. Today's cafe society is a weak decaf
By Michael Idov
The coffeehouse may just be mankind's greatest invention. It certainly is the most collective one: In the classic, which is to say Viennese, form, the coffeehouse is perhaps the finest collaboration between Europe, Asia and Africa. It is almost as if every great civilization in the world had taken a brief time-out from trying to kill one another to brainstorm what a perfect public space should look like. The result was equal parts Athenian agora, Saharan oasis and Continental court, with pastries. Modernity in its bloody splendor has tumbled out of the coffeehouse: In January of 1913 alone, as Frederic Morton describes in his Vienna history "Thunder at Twilight," Lenin, Trotsky, Hitler, Freud and Josip Broz Tito were using the same cups at Vienna's Café Central. (Stalin was in town, too, but he was too much of a country bumpkin for espresso.)
And yet it seems that we're losing the coffeehouse—less to the usual suspects like the Internet and Dunkin' Donuts than to our own politeness. We've brought the noise level down to a whisper and are in the process of losing even the whisper: Enter the modern café and the loudest sound you'll hear will be someone typing, in ALL CAPS, an angry blog comment. We've become a nation of coffee sophisticates—to the point where McDonald's feels compelled to roll out some semblance of an espresso program—but we're still rubes when it comes to the real purpose of the place: It's not the coffee. It's what your brain does on it.
It's telling that the people credited with the invention of the coffeehouse tend to be rogues with tangled multinational roots. There's George Franz (or Jerzy Franciszek, or Yuri-Frants—his very name holds at least three passports) Kolschitzky. A kind of Austrian-Polish-Ukrainian-Cossack cross between Paul Revere and Ray Kroc, he is said to have slipped out of the Turk-beseiged Vienna in 1683, disguised in a fez, to call up reinforcements. When invited before the emperor to collect his reward, he asked for the sacks of "camel fodder" left behind by the retreating enemy, and opened Vienna's first café shortly afterward. This whole coffee caper whiffs mightily of folklore—it's even reminiscent of one Arabic fable—and sure enough, no historical record of it exists. Kolschitzky's real-life counterpart, however, is hardly less exotic: an Armenian named Johannes Diodato, who's been given a royal monopoly on coffee for his services as a spy.
It's no wonder, then, that the coffeehouse became a hotbed of a proudly rootless culture. Psychoanalysis and socialism sprang partly from the espresso cup. In 17th-century London, coffeehouses were derided, in a fantastic turn of phrase, as "seminaries of sedition." By the end of that century, they numbered over 2,000. Poet John Dryden held court at Will's; the so-called "Learned Club" gathered at the Grecian, where a sword fight once erupted over the correct pronunciation of a Greek word; and the London Stock Exchange itself began with a newsletter John Castaing distributed in 1698 at Jonathan's. A bit later, Adam Smith, Edward Gibbon, and Samuel Johnson—with Boswell in tow, naturally—enjoyed interdisciplinary shouting matches with actors and painters at the Turk's Head. And then the East India Trading Company buried the kingdom in affordable tea, private clubs closed their doors to the rabble, and the age of the coffeehouse in the British Isles was over.
In the late 19th century, the global nexus of café culture returned to Vienna for arguably the greatest stretch of coffee-fueled creativity known to man. This is when every convention of the modern coffeehouse—the many-antlered coat rack, the marble tabletop, the day's newspaper spread Torah-like on bamboo holders—fell into place, and its role as the intellectual sparring ring was cemented. Turn-of-the-century Vienna gave rise to a generation of close-knit "Jung Wien" writers, including Arthur Schnitzler and Stefan Zweig, most of whom practically lived in cafés. This is not an exaggeration. Peter Altenberg had his mail delivered to Café Central.
The arrangement was hardly idyllic. The Jung Wieners steadily went through a limited pool of girlfriends and came to blows with each other over reviews. Yet out of the friction came the kind of humanist thought that still reverberates throughout literature, design, philosophy, even architecture. And once again, a cosmopolitan, slightly alienated attitude permeated the room: Most of the writers were, after all, Jewish, including Schnitzler.
It was Vienna's postwar generation that grew tired of what they now saw as an irredeemably quaint antebellum lifestyle. In the early 1950s, dozens of famous coffeehouses—some of them centuries in operation—shuttered one by one. The Viennese had a special word for this phenomenon, as the Viennese tend to: kaffeehaussterben, coffeehouse death. Some placed the blame on the more casual "espresso bar," with its new and blasphemous practice of selling coffee to go, but many suspected a deeper malaise. Critic Clive James, in his collection "Cultural Amnesia," logically blames it on the decimation and scattering of the Jewish civil society and the lost art of Jewish conversation. An even likelier culprit, I think, is the Germanic postwar self-loathing jag. "The truth is that I have always hated the Viennese coffeehouse," Austrian novelist Thomas Bernhard wrote in his memoir, "because in them I am always confronted with people like myself, and naturally I do not wish to be everlastingly confronted with people like myself."
Compared to the passions that roiled London and Vienna, the American coffeehouse was always genteel and, dare I say it, elitist; the only surviving art genre our café society has birthed is coffeehouse folk music—sensitive-guy or –gal tunes that fade almost eagerly into the background. Sure, we love the idea of the coffeehouse because it dovetails with our idea of urbanity in general: That's why a coffeehouse is the first harbinger of a gentrifying area, and the last stand of a neighborhood in decline. As with a hospital or a bookstore, we may not even go there but feel better knowing one is near.
We've also used it to balkanize ourselves. The Viennese coffeehouse is a communal exercise in individuality: As an Austrian friend noted recently, his compatriots don't go to cafés to socialize—everyone goes to watch everyone else. This phenomenon doesn't quite work in America because cafés here tend to draw specific crowds: a hipster café, a mom café, a student café. With the exception of the ubiquitous Starbucks, where slumming and aspiration meet, we use our coffeehouses to separate ourselves into tribes.
Don't get me wrong—any coffeehouse is better than none at all, and their second, post-Starbucks, wave of proliferation is a fantastic phenomenon, bringing jobs and the pleasure of good espresso to communities across the country. The only trouble with the new, proudly bean-centric places that keep popping up is that they tend to be austere obsessives. There's barely anything to eat other than a perfunctory pastry, and never, ever any alcohol. You're supposed to contemplate your coffee, top notes to finish, in worshipful silence, a notion as wrongheaded as a caramel frappucchino.
The coffeehouse experience is inextricably linked with newsprint: Coffee and a paper are an even more powerful pair than coffee and a cigarette. Early London coffeehouses used to have "runners"—people who would go from café to café to announce the latest news; there's just something about the intake of data tidbits from many sources that goes well with coffee. Same goes for writing in cafés. Hemingway nails it down within the very first pages of "A Moveable Feast": the author alone with his café au lait, shavings from his pencil curling into the saucer, and, of course, a girl with "hair black as a crow's wing and cut sharply and diagonally across her cheek" at the next table.
Which brings us to the laptop. At any given moment, a typical New York coffeehouse looks like an especially sedate telemarketing center. Recently, there's been a movement afoot to limit the use of laptops. The laptoppers hog the tables, but they do the coffeehouse experience an even deeper disservice. They make it a solitary one, and it's a different kind of solitude from the stance sung by Hemingway. You're not just alone—you're in another universe entirely, inaccessible to anyone not directly behind you.
Perhaps the economic downturn will untie our tongues and restart the conversation. With rents going down, the next Café Abraco or Café Regular may be able to afford a larger space and have some money left for tables and chairs. And the new Lost Generation of creative strivers is already here to fill these chairs. In Los Angeles, friends report, where the lavish business lunch is no longer the industry standard, the café society is in unexpectedly full swing. Somewhere in the caffeinated ether, the ghost of Schnitzler is smiling.
— Latvian-born Michael Idov is a contributing editor at New York Magazine and author of the novel "Ground Up."

World Energy Outlook

It was barely 10 years ago that a well-reasoned cover story in The Economist told us we were “drowning in oil” and that its price could drop by more than half to $5 a barrel. As everybody now knows, prices rose tenfold before peaking last summer. There are just so many moving parts to the energy market that making forecasts is a mug’s game. If exhaustive detail is a measure of credibility, though, few sources equal the International Energy Agency’s World Energy Outlook, published yesterday.

Coinciding with the first time since 1981 that global energy use has declined, 2009’s report is not complacent about future energy supply and environmental challenges. Like many forecasts, though, it makes the mistake of extrapolating recent trends too freely. For example, the IEA expects global oil production to rise from last year’s 85m barrels to 105m by 2030 while acknowledging that about two-thirds of this will come from fields yet to be found or developed. But at what cost?

In just the past decade, exploration spending has nearly tripled in order to maintain a similar rate of supply growth. Leaving aside arguments that the IEA’s forecast skirts the edge of what is geologically feasible, incremental barrels are getting pricier to find and, once out of the ground, are more coveted. The IEA expects real oil prices to hit $87 a barrel by 2015 and $115 by 2030 to make this all possible. What about the possibility that supply will falter and that a far higher clearing price will instead do the trick? Living with $300 crude is no more outlandish than suggesting a decade ago that $80 would be the new normal. The payoff from conserving oil could soon outstrip that of drilling for it.

Just as forecasters failed to appreciate the market’s reaction to low prices a decade ago, they may be underestimating how we will react to increasingly expensive oil tomorrow.

Clash of the clouds

Cloud computing
Clash of the clouds
Oct 15th 2009

The launch of Windows 7 marks the end of an era in computing—and the beginning of an epic battle between Microsoft, Google, Apple and others

DO YOU have plans for next weekend? If not, don’t worry: perhaps a friend will be throwing a party to celebrate the launch of Windows 7, Microsoft’s new operating system, on October 22nd. You’ll get help installing the program and be shown how to use the new features. To maximise the fun, your friend will get tips from the “HostingYourParty” video on YouTube or go to the dedicated website, complete with downloadable party favours and a trivia quiz (sample question: “The Microsoft Pretzel Hunt is an annual pretzel hunt held at the Redmond campus. True or false?”).

This is not satire. It is a toe-curling attempt by Microsoft to create some buzz for its new software. Fortunately for the firm, it will hardly matter, because Microsoft dominates the market for operating systems. After the let-down that was its predecessor, Windows Vista, Windows 7 is certain to be a success. There is plenty of pent-up demand, because Vista’s aged predecessor, XP, is still widely used. Reviews of Windows 7 have been positive, some even glowing, although the software is sometimes hard to install.

Windows 7 is not just a sizeable step for Microsoft. It is also likely to mark the end of one era in information technology and the start of another. Much of computing will no longer be done on personal computers in homes and offices, but in the “cloud”: huge data centres housing vast storage systems and hundreds of thousands of servers, the powerful machines that dish up data over the internet. Web-based e-mail, social networking and online games are all examples of what are increasingly called cloud services, and are accessible through browsers, smart-phones or other “client” devices. Because so many services can be downloaded or are available online, Windows 7 is Microsoft’s first operating system to come with fewer features.
As one window closes…

The launch of Windows 7 coincides with the closing of the book, after more than a decade, on Microsoft’s antitrust woes. The company got into hot water in America and Europe mainly for abusing its dominance of PC operating systems to promote its web browser. On October 7th the European Commission said it had all but reached a settlement with Microsoft. The firm has agreed to give Windows users in Europe a “ballot screen” that allows them to choose a rival browser in place of its own Internet Explorer.

Windows is not going to disappear soon, but cloud computing means it is no longer so important. Other products, some being launched this autumn with less fanfare than Windows 7, represent Microsoft’s future. Last month the company opened two data centres that between them will contain more than half a million servers. This month it released a new version of Windows for smart-phones. And next month it will launch Azure, a platform for developers on which they can write and run cloud services.

The rise of cloud computing is not just shifting Microsoft’s centre of gravity. It is changing the nature of competition within the computer industry. Technological developments have hitherto pushed computing power away from central hubs: first from mainframes to minicomputers, and then to PCs. Now a combination of ever cheaper and more powerful processors, and ever faster and more ubiquitous networks, is pushing power back to the centre in some respects, and even further away in others. The cloud’s data centres are, in effect, outsize public mainframes. At the same time, the PC is being pushed aside by a host of smaller, often wireless devices, such as smart-phones, netbooks (small laptops) and, perhaps soon, tablets (touch-screen computers the size of books).

Although Windows still runs 90% of PCs, the fading importance of the PC means that Microsoft is no longer an all-powerful monopolist. Others are also building big clouds, including Google, a giant of the internet, and Apple, renowned as a maker of hardware, with a market capitalisation that now exceeds those of both Google and IBM, its original arch-rival (see chart above).

Granted, there are hundreds if not thousands of firms offering cloud services—web-based applications living in data centres, such as music sites or social networks. But Microsoft, Google and Apple play in a different league. Each has its own global network of data centres. They intend to offer not just one or two services, but whole suites of them, with services including e-mail, address books, storage, collaboration tools and business applications. They are also vying to dominate the periphery, either by developing software for smart-phones and other small devices or by making such devices themselves.

These three giants (for their vital statistics, see table) are already preparing for battle. In July Google mounted a direct attack on Windows by promising to launch a free PC operating system, Chrome OS. Rumour has it that a basic version may hit the market on the same day as Windows 7, or soon after. Microsoft’s new operating system for smart-phones represents its latest effort to catch up with Apple’s iPhone and Google’s operating system for handsets, called Android. On October 12th Apple and Google severed a tie when Arthur Levinson, a member of both boards, resigned from Google’s. In August Eric Schmidt, Google’s chief executive, had quit Apple’s board because “Google is entering more of Apple’s core businesses,” in the words of Steve Jobs, the gadget-maker’s boss.
A taxonomy of giants

Despite the growing similarities among the three, each is a unique beast, says Michael Cusumano, a professor at Massachusetts Institute of Technology’s Sloan School of Management. They can be classified according to how they approach the cloud, how they make money and how openly they approach the development of intellectual property.

Google, you might say, has been a cloud company since its birth in 1998. It is best known for its search service, but now offers all sorts of other products and services, too. It has built a global network of three dozen data centres with 2m servers, say some estimates. Among other things, it offers a suite of web-based applications, such as word processing and spreadsheets. Lately it has branched out, releasing Android for phones, and its Chrome web-browser and operating system for PCs.

It took Google a while to come up with a way of making money, but it found one in advertising, its main source of revenue. It handles more than 75% of search-related ads in America. Worldwide its share is even higher. Google is also trying to make money from selling services to companies. On October 12th it said that Rentokil Initial, a pest-control-to-parcel-delivery group, would roll out Google’s online applications to its 35,000 employees, making it the biggest company to do so.

Google’s reliance on advertising explains its open approach to intellectual property. Giving Android and Chrome OS away as open-source software not only makes life difficult for rivals’ paid-for products but also increases demand for Google’s services and the reach of its ads. Its openness has limits: Google says little about the architecture of its data centres and search algorithms, because they give the company its competitive edge. The way it organises R&D internally is open and decentralised: self-organising teams come up with ideas for most new services.

If Google was born in the sky, Microsoft started on the ground. Office, its bestselling suite of PC programs, is almost as ubiquitous as Windows. But the company is less a stranger to cloud computing than it may seem. It has built a network of data centres, and is starting to gain traction after losing billions developing online services. Its Xbox games console has powerful online features. Bing, its new search engine, has gained a shade in market share (though it is still miles behind Google). It is even preparing a stripped-down web-based version of Office, and it now offers much of its business software as online services.

However, most of Microsoft’s revenue and all of its profit still come from conventional shrink-wrapped software. But the company cannot leave online advertising to Google, because consumers expect cloud services to be free, financed by ads. Hence Microsoft’s efforts to convince Yahoo!, another online giant, to merge its search and part of its advertising business with Microsoft’s. The deal, sealed in July, means that Microsoft will handle 10% of searches, against Google’s 83%, says Net Applications, a market-research firm.

Given Microsoft’s history, it is hardly surprising that its treatment of intellectual property differs from Google’s. It gives other software firms the technical information they need to write programs that run on, say, Windows. Otherwise, it guards the underlying recipes of its software jealously. That said, the firm now supports many open standards and has even started using bits of open-source software. Internally, its R&D is somewhat more centralised than Google, at least in its online division: teams are bigger, work with more co-ordination and get more guidance from above.

Apple, too, came from outside the cloud. Online services have always been a bit of an afterthought to what the company excels at: pricey but highly innovative bundles of hardware and software, of which the iPhone is only the latest example. Its online offerings—the iTunes store for music and video, the App Store for mobile applications, and MobileMe, a suite of online services—were all originally meant to drive demand for Apple’s hardware, but the firm’s interest in the cloud has grown. It is building a $1 billion data centre, possibly the world’s largest, in North Carolina.

Still, Apple’s financial health thus far has depended mainly on selling hardware. Gadgets generate most of the firm’s revenue and profit. The firm does not reveal its revenue from services separately, but it is not to be sneezed at. Apple accounts for 69% of online music sales in America and 35% of all sales, more than Wal-Mart, reckons NPD Group, a market-research firm. Apple has so far forgone advertising revenue: its services are ad-free, but most of them require payment. Apple’s services are aimed at consumers, not businesses.
Illustration by Ian Whadcock

Apple is also the odd one out when it comes to openness. The word does not appear in its vocabulary. It does not allow any other hardware-maker to build machines using its operating system. It blocks iPhone applications it does not approve of from appearing in the App Store. Apple is also secretive about the way it conducts its internal R&D. Mr Jobs clearly calls most of the shots. But insiders say that there is a system of teams that pitch projects to him.

How will this three-way contest play out? The last similar war was in the 1980s and early 1990s, when Apple, IBM and Microsoft fought for mastery of the PC. After much fire and smoke, Microsoft was victorious. Thanks to what economists call strong network effects, which allow winners to take almost all, Windows relegated its rival operating systems to mere sideshows, securing fat profits for its owner.

Such a lopsided result is unlikely this time. One reason is that the economics of the cloud may be different from those of the PC. Network effects are unlikely to be as strong. Much of the cloud is based on open standards, which should make it easier to switch providers. To underline this point and to counter arguments that it is trying to lock users in, Google has set up the Data Liberation Front, a team of engineers whose job is to devise ways of allowing people to transfer their data.

Unfortunately for Google, it is equally unclear whether the most open player will win, as Microsoft did last time. Many of Google’s new services have failed to take off. Having control over the software on the PC, smart-phones and other client devices, Microsoft can more easily create what it calls “seamless experiences”, for example by keeping a user’s address book and other personal information in step. Consumers may also prefer Apple’s tightly integrated, easy-to-use devices and services, despite the restrictions they impose. Lots of people buy iPods and download music from iTunes even though it is difficult to play the songs on other devices.

Second, all three giants have reliable sources of cash to sustain them. Windows may be under attack, not least because of the boom in cheap netbooks, which has forced Microsoft to reduce prices, says Matt Rosoff of Directions on Microsoft, a newsletter. Even so, the operating system will keep on giving for some time. Microsoft has other strong divisions too, including business and server software. Google may lose some market share in search (and some advertising) to the combination of Bing and Yahoo!, but it is unlikely to be dethroned. Apple is still able to command premium prices, although others make hardware just as slick.
Full war chests

This means that all three will have ample resources to spend in the main areas of the fight: data centres, cloud services and the periphery. In data centres, Google is ahead, but Microsoft is catching up in size and sophistication. Apple has most to learn, but this, too, seems only a question of time and money. Just as much of hardware has become a commodity, knowing how to build huge data centres may not be a big competitive advantage for long. And data centres can get only so big before scale ceases to be an advantage.

In services too, Google is ahead. But in Bing Microsoft may at last have created a worthy rival. The “decision engine”, to use the company’s term, does a good job of helping people choose a new camera or book a holiday. The big question is whether Apple can catch up. Its iTunes and App stores are successes, to be sure, but for now they are highly specialised. Its broader suite of cloud services, MobileMe, is nothing to write home about.

At the cloud’s periphery, however, Apple has a strong position, thanks to the success of the iPhone. More than 30m have been sold so far, 5.2m in the quarter ending in June. Its share of the American market is pushing 14%. The App Store now boasts 85,000 applications and a total of more than 2 billion downloads. But recently Google’s Android has gained momentum. Several handset-makers have released smart-phones based on it, or will do so in the next few months. In early October it received the backing of Verizon, America’s biggest mobile operator. At the end of 2012, predicts Gartner, a market-research firm, Android phones will have a bigger share of the market than iPhones.

Microsoft’s mobile strategy, though, is in disarray. This could prove to be a serious weakness, as people increasingly use mobile devices to reach online services. Plans to build smart-phones of its own seem to be going nowhere. Its music player, Zune, will remain just that, Steve Ballmer, Microsoft’s boss, said recently. Pink, a project to develop phones based on technology from Danger, a start-up acquired by Microsoft in 2008, is said to face death by cancellation—even more likely after Danger lost personal data belonging to tens of thousands of its customers earlier this month. And the latest version of Windows Mobile is no match for the iPhone and Android. Some handset-makers, including Motorola, have ditched the software.

However, as with Bing, Microsoft has only recently been getting serious. It has put Windows Mobile under new management. Another version is expected by the end of 2010. Some analysts fancy Microsoft’s chances. According to iSuppli, a market-research firm, “Reports of Windows Mobile’s death are greatly exaggerated.”

What could disrupt the three-sided struggle? The antitrust authorities, possibly. Now that Microsoft has made peace, the other two are likelier targets. Most observers imagine Google would be first, pointing to the hullabaloo caused by a settlement with book publishers that allows Google to create a vast digital library. But Apple may beat Google to the dock. The firm’s tight control over its technology is no problem in markets where its share is small (in PCs, it is a mere 7.2%). But in mobile applications and digital music distribution Apple is by far the market leader. America’s Federal Communications Commission is looking into its refusal to carry Google Voice, a telephony and messaging application for the iPhone. Its bar on rivals’ devices connecting to iTunes may cause trouble too. Tellingly, Apple recently hired a lawyer with antitrust experience: Bruce Sewell, the former general counsel of Intel, the world’s biggest chipmaker, which the European Commission wants to pay a fine of more than €1 billion ($1.5 billion) for abusing its dominance.

Then there are market forces. One of the three may come up with something “insanely great”, an expression used at Apple in times past to describe the original Macintosh computer. Apple itself may do so with a tablet computer, rumoured to be ready for release as early as January. Others have built such a dream device, but none has yet overcome the problem of input: typing on a screen is difficult and handwriting recognition has never really worked. If Apple has cracked it, it could upend the PC industry, as the iPhone did the handset market. If the tablet is also a good substitute for paper, the publishing and newspaper industries could be in for more upheaval. The blogosphere is abuzz with rumours that Apple is talking to publishers about offering their content on its device.

The final possibility is for another contender to emerge. The obvious candidates are Amazon, the world’s biggest online retailer, and Facebook, the leading social network. Amazon already has a cloud of sorts. It offers cloud computing services to other online firms and has developed the Kindle, an electronic reader, which is due to be available worldwide from October 19th. Facebook runs what is arguably the most successful cloud service, with more than 300m registered users. It provides a platform for people to communicate, share information and collaborate online—all things that businesses want to do, too.

Only one thing seems sure about the future of the digital skies: the company or companies that dominate it will be American. European or Asian firms have yet to make much of an appearance in cloud computing. Nokia, the world’s biggest handset-maker, is trying to form a cloud with its set of online services called Ovi, but its efforts are still in their infancy. Governments outside America may harbour ambitious plans for state-funded clouds. They would do better simply to let their citizens make the most of the competition among the American colossi.

$1.8 trillion

A highly influential American has finally hit the panic button about the tremendous mountain of debt the country is piling up.

Last year, Warren Buffett says, we were justified in using any means necessary to stave off another Great Depression. Now that the economy is beginning to recover, however, we need to curtail our out-of-control spending, or we'll destroy the value of the dollar
and many Americans' life savings.

Some not-so-fun facts from Buffett's editorial today in the New York Times:

* Congress is now spending 185% of what it takes in
* Our deficit is a post WWII record of 13% of GDP
* Our debt is growing by 1% a month
* We are borrowing $1.8 trillion a year

$1.8 trillion is a lot of money. Even if the Chinese lend us $400 billion a year and Americans save a remarkable $500 billion and lend it to the government, we'll still need another $900 billion.

So, where's it going to come from? Most likely the printing press. And, ultimately, Buffett says, that will destroy the value of the dollar.

Don't write off Germany

JUST think. If the German GDP figures had been reported in the American fashion (annualising the quarter-on-quarter change), they would have been announced as a 13.9% decline. Imagine the headlines if America ever delivers that kind of number.

It doesn't seem fair. The virtuous Germans did not enjoy a housing boom. Their public finances are under reasonable control, with a budget deficit forecast at 4.4% of GDP this year. They joined the euro at too high a rate, and then painstakingly made themselves competitive, creating a powerful export machine (their current account is in surplus). And yet their GDP is set to contract this year by far more than the profligate Americans or British.

Exports are, of course, the reason why German GDP has fallen so sharply. Put crudely, the Lehman collapse caused businesses to put their capital expenditure programmes on hold, and that meant cancelling orders for the type of goods Germany produces. Conversely, this means that, if the green shoots (better purchasing managers' surveys, higher commodity prices) continue to flourish, then German activity will rebound.

Indeed, one could make a class for buying German assets whichever way the global economy goes. If it rebounds, then German manufacturers will benefit (admittedly, many of these are not on the listed market). And if we are heading for financial breakdown, then one would much rather own German government bonds than those of America or much of the rest of Europe.

Buttonwood

Rights issues

Published: April 7 2009 15:15 | Last updated: April 7 2009 20:00

The economy is shot, public finances are on the rocks and many banks are state controlled. Yet UK plc is adroitly restructuring itself. Indebted companies have raised about £20bn ($29.5bn) of equity this year. The banks have taken most, with HSBC alone swallowing £12.5bn, but the miners, construction and property companies have hardly held back. What is surprising, though, is how little equity has been raised elsewhere: according to Dealogic, just half the UK amount in Europe and the US each.

National idiosyncrasies may explain some of this apparent sluggishness. German companies have raised almost no equity this year – perhaps believing, as Berlin long did, that the crisis might pass. But US companies have been almost as slow. Another possibility is the process itself. Yet, while the British rights issue system has been streamlined to 16 days, US companies can raise capital in a heartbeat through book-building, and Europe is often not much slower.

Instead, the reason for UK plc’s speed may be its shareholders. European companies are often controlled by families – which may lack the funds for cash calls. US companies can have large retail bases, invested via mutual finds, which face similar constraints. UK institutional investors, by contrast, have played an active role. They have wanted strong balance sheets among the companies they co-own, were prepared to pay for it, and even act as sub-underwriters to help an issue’s success.

Steep discounts have protected sub-underwriters from the risk of large rumps of unplaced shares. Minorities, meanwhile, can avoid dilution by exercising pre-emption rights that allow participation on equal terms. The result is a relatively efficient and equitable process – and, probably, a lower cost of capital.

So hats off, for once, to institutional shareholders, if not to the debt-binged companies they saved. Other companies, in other countries, may regret not moving as fast.

BACKGROUND NEWS
UK companies have raised some $29bn of fresh capital through rights and convertibles issues this year, compared with $14bn in Europe and $16bn in the US. Asia has, meanwhile, raised $24bn, according to Dealogic.

Citigroup estimates that European companies, including those in the UK, will need to raise as much as $400bn of equity in 2009 and 2010

Agriculture

Green shoots
Mar 19th 2009 | HONG KONG
From The Economist print edition

No matter how bad things get, people still need to eat

At a time when much of the global economy is falling apart and demand both for consumer goods and the firms that make and finance them is collapsing, the notoriously cyclical world of agriculture is holding up remarkably well. Prices for grains and meat are down from the peaks of mid-2008, but are 30-50% above their averages over the past decade. There is reason to believe that this strength is more than just another of the many bubbles that have recently inflated, only to pop.

Higher prices are hardly a universal blessing: they are good for farmers, many of whom are poor, but bad for consumers. Some of the increase can be blamed on the shift of crops from food to fuel, prompted by wildly inefficient subsidies. But high prices are also a sign of progress because their single largest cause is the steady increase in demand from poorer countries, as people there eat more food—especially more protein. More people are better nourished thanks to a bit more grain, a lot more meat, and much more milk.

China’s role has been profound, reflecting its enormous economic progress and huge population. In the past decade, says Carlo Caiani of Caiani & Company, an investment-advisory firm based in Melbourne, the consumption of milk has grown seven-fold, and that of olive oil six-fold. China is consuming twice as much vegetable oil (instead of less healthy pork fat), 60% more poultry, 30% more beef and 25% more wheat, and these are merely the obvious foods. Scores of niches have expanded dramatically: people are drinking four times as much wine, for example.

And yet even with all this growth, people in China still, on average, consume only one-third as much milk and meat as people in wealthy countries such as Australia, America and Britain. The gap is even larger with India, which is also growing fast. Overall, protein intake in Europe and America is unlikely to expand much, but a combination of rising incomes and population in developing countries could increase demand by more than 5% annually for years to come. “Once people are accustomed to eating more protein, they won’t take it out of their diet,” says Mr Caiani.

Expanding supply at the same rate will be difficult, because the amount of arable land under cultivation is growing by only a fraction of a percentage point each year. In China and India many of the most fertile areas are the ones being developed for roads and factories. That means existing land is becoming more valuable, and must become more productive.

The consequences stretch from one end of the food chain to the other, as higher food prices prompt a response. BASF, one of the world’s largest producers of agrochemicals, saw 9% growth last year in agricultural sales, including 16% growth in Asia. It expects the industry to grow by 17% this year, which has begun well, the global economic tumult notwithstanding.

Its competitors are also prospering. The share prices of Agrium, CF Industries, Bunge and Syngenta spiked last year along with food prices, then tumbled (along with the shares of nearly every other company), but then stabilised, even as the rest of the stockmarket continued to tank. Monsanto, which a decade ago had been praised and then trashed for selling highly efficient genetically modified seeds, has seen its popularity restored for exactly the same reason. After years of strong growth, and with the prospect of more to come, its shares are valued at 20 times trailing earnings, nearly double the market average.

Interest in the industry is still growing. A conference for fund managers tied to agriculture held annually in Sydney by Austock, an Australian broker, attracted a few dozen contrarian souls three years ago. This year’s event, which began on March 16th, had to be restricted to several hundred ticket-holders, with many others turned away. Deals are also being done. On March 13th Terra Firma, a private-equity firm based in London, announced it would buy 90% of Consolidated Pastoral Company, the vast Australian cattle holdings of the Packer family, which encompass 5m hectares (12m acres) of land.

In February Nufarm, an Australian agrochemical maker, won approval for its acquisition of AH Marks, one of Britain’s oldest chemical companies, which has a valuable portfolio of herbicides. Nufarm itself only barely avoided being acquired in 2007 in a joint bid by an American private-equity firm and a Chinese state-owned company. Shares of Mosaic, a maker of fertiliser, have been swept by one acquisition rumour after another. Last year COFCO, China’s state-controlled food conglomerate, bought 5% of Smithfield, the world’s largest pork producer. Al Qudra, an Abu Dhabi-based investment company, said it had bought big tracts of farmland in Morocco and Algeria, and was closing in on purchases in Pakistan, Syria, Vietnam, Thailand, Sudan and India.

In November China Agri-Industries, a subsidiary of COFCO, established a partnership with Wilmar, the world’s largest trader in palm oil. Landkom, listed on London’s AIM market, and Black Earth Farming, listed in Stockholm, have each made big investments in farming in Ukraine. And reports are circulating in China about local investors buying 50,000 hectares of farmland in Argentina, and considering other investments in Argentina and Brazil.

Even China is finally opening up to private agricultural investment, in part because new laws allow farmers to lease land, thus making possible economies of scale. Asian Bamboo, a company that is listed in Frankfurt, leases 27,000 hectares in Fujian province. It announced profits for 2008 of €21m ($30.4m) on sales of €44m, reflecting how, at least for the moment, agriculture can be an extraordinarily high-margin business.

There are limits to what can be done, however. By far the most ambitious of all the land deals in the past year was Daewoo Logistics’ contract with the government of Madagascar to lease 1.3m hectares, almost half the country’s arable land, to produce corn for Daewoo’s home country, South Korea. But after riots and a coup in Madagascar, the deal is off. These tensions are not unique. In response to local concerns about the loss of critical food supplies, several governments have imposed taxes or other restrictions on exports: on a key ingredient of fertiliser in China, on grain in Argentina, on rice in India. That sort of meddling undermines some investments and businesses. But in a strong market, it makes the businesses that can operate freely all the more lucrative and valuable.

Aronstein Turns Commodity Bull After Picking 2008 Top

(Updates oil, copper and CRB Index starting in seventh
paragraph; Adds mining company comments on China demand in 27th paragraph.)

By Millie Munshi
March 23 (Bloomberg) -- Michael Aronstein, the strategist
who predicted last year’s commodities collapse, is putting 20
percent of the money he manages into raw materials in a bet that
prices have bottomed.
Aronstein started buying metals, agriculture and energy
futures this month for the $115 million fund he helps manage at
Oscar Gruss & Son Inc. in New York. The worst commodity rout in
at least five decades forced producers to idle rigs and mines at
the same time China and the U.S. spend $1.4 trillion on roads,
bridges, schools and hospitals, reviving demand, he said.
“People have gotten way too negative about the global
economy,” Aronstein, 55, said in an interview. “The markets
did not react in a normal recessionary tract. It was like we
went through the outbreak of a war or some enormous natural
disaster that just closed down the global capital markets.”
Aronstein, a graduate of Yale University who makes knives
and tools as a blacksmith in his spare time, isn’t alone.
Merrill Lynch Global Wealth Management says commodities will
benefit as the economy improves. Theresa Gusman, who manages
$215 billion for Deutsche Bank AG’s DB Advisors unit, is telling
clients to buy raw materials from copper to oil because of
“dramatic” cuts in supplies.

‘Optimal Time’

About 43 percent of U.S. rigs exploring for natural gas
have been shut since September, the fastest pace since 2002,
according to Baker Hughes Inc. Copper producers reduced output
by more than 870,000 metric tons this year, or 6 percent,
estimates CPM Group, a commodity research firm in New York.
Global spending on exploration and production at mining
companies has been slashed 50 percent, Gusman said.
“Now is the optimal time to invest in commodities,”
Gusman said. “Supplies have been cut back dramatically and it
will lead to a fast depletion of resources. There’s been a
significant pullback in exploration. There may be shortages.”
Officials from the Organization of Petroleum Exporting
Countries and the International Monetary Fund said at a
conference on March 17 that lower oil prices are curbing
investment in new fields, risking a supply crunch when the
economy recovers. OPEC members idled 4.2 million barrels of
daily production, or 14 percent, since September after crude
prices dropped as low as $39.42 a barrel last month on the New
York Mercantile Exchange from the record of $147.27 on July 11.
Oil traded today at $53.46 at 1:18 p.m.

Signs of Rebound

Stockpiles of commodities from copper to coffee have
fallen, helping to boost prices the past three weeks. Copper has
jumped 20 percent this month, as inventories monitored by the
London Metal Exchange dropped 6.3 percent to 508,325 metric
tons. Coffee is up 11 percent since March 10 to $1.1725 a pound
on ICE Futures U.S. in New York.
The Reuters/Jefferies CRB Index of 19 commodities rose 8.1
percent since the end of February to 228.78 today, heading for
the first monthly gain since June after plunging as much as 58
percent from a record 473.97 on July 3. Among the top gainers in
March were copper, crude oil, gasoline and corn.
“Just like high prices are the best fertilizer for a new
crop, low prices are the best extinguisher for the old crop,”
said Dennis Gartman, an economist and the editor of the Gartman
Letter in Suffolk, Virginia, who also correctly forecast the
peak in commodities last year. “If you look at most commodities
now, you’ll see that they’ve already bottomed. The commodity
markets are telling you that there is a strengthening
environment in the economy.”

Defying Recession

Prices are increasing even as the U.S., Japan and Europe
suffer through the first simultaneous recessions since World War
II. During the 16-month U.S. slump from July 1981 to November
1982, the last major recession, the CRB index dropped 11
percent.
“The stimulus plans and other government plans that are
happening are coming from a point of weakness, not from a
position of strength,” said Gijsbert Groenewegen, a partner at
Gold Arrow Capital Management in New York. “You’re not going to
see gains for things like copper or oil or the other industrial
commodities. They should fall further.”
Aronstein, who started following commodities in 1979 as a
strategist at Merrill Lynch, started his first hedge fund in
1987, investing mostly in equities. In 1992, he founded a
commodity-focused fund, forecasting that global growth would
spur demand for natural resources. The CRB index gained for
three straight years starting in 1993. In 1995, he was named one
of the 10 best investors of the decade in the Financial Times’
“Guide to Global Investing.”

Commodities or Tech

In 1997, he started a private-equity firm that acquired
natural-resource producers, including a timber mill and lumber
company, Preservation Wood. He’d make the 400-mile (643-
kilometer) commute from his home in Westchester County, New
York, to New Portland, Maine, to oversee mill operations and
sometimes worked the saw himself to ensure orders got filled.
“Back then, you couldn’t get anyone interested in
commodities” because it was the height of the technology-stock
boom, said Aronstein, who graduated from Yale in New Haven,
Connecticut, in 1974 with a Bachelor’s of Arts degree in
English. “All the assets I had looked at in 2000 were selling
at six or seven times the price in 2007,” he said. “I just
couldn’t get anyone interested. They all wanted to know, ‘Does
this have an Internet play?’”

Commodity Boom

Aronstein, who is married and has two sons, folded his
private-equity firm, Commercial Materials, in 2001, just before
the start of the six-year bull market in commodities that caused
lumber to double and led to a six-fold gain in copper and oil.
The CRB index more than doubled from 2002 through the first
half of 2008, as surging demand and speculative investment in
commodities sent the prices of oil, corn, wheat, rice, copper
and platinum to records.
The rally began to fade in July on concern the global
recession would curb demand. The CRB plunged a record 50 percent
in the last six months of 2008 and another 0.3 percent this
year.
“One of the things that is unique now is that we’ve just
seen a whole bear-market cycle in commodities within a six- or
eight-month span,” Aronstein said. “A lot of what happened in
commodities had to do with the flow of speculative money. Now,
you’re going to see things trading more in line with the
fundamentals of each commodity.”

Early Indicator

The 30 percent jump in copper this year is an early
indication that demand has begun to rebound in China, the
world’s biggest metals user, according to Frank Holmes, chief
executive officer of U.S. Global Investors Inc. in San Antonio.
China’s copper imports surged to a record 283,461 metric tons in
February, the Beijing-based customs office said on March 16.
The metal’s gains have predicted rallies for commodities in
the past, said Holmes, who helps manage $2.1 billion. In the
first quarter of 2002, copper jumped 17 percent, leading gains
in the CRB index. The gauge jumped 23 percent that year, the
biggest annual increase since 1979.
Copper will continue to climb in 2009 as last year’s drop
forced mining companies to cut production, leaving “tight”
supplies of the metal, Holmes said.
Low prices forced Phoenix-based Freeport-McMoRan Copper &
Gold Inc., the world’s largest publicly traded copper producer,
to fire 1,550 employees since December, or 5 percent of its
global workforce. The company has announced mine closures that
will curb output by 11 percent next year.

Copper Losses

Freeport reported a fourth-quarter net loss of $13.9
billion after writing down the value of mines, metal inventories
and goodwill related to the acquisition of Phelps Dodge in 2008.
Freeport tumbled 76 percent in New York trading last year. The
shares rallied 60 percent this year to $39 as copper rose.
“They call it Dr. Copper, because it’s used as an economic
bellwether,” said Paul Baiocchi, who helps manage $1 billion as
a senior market strategist at Delta Global Advisors Inc. in
Huntington Beach, California. “We should see soon enough a
tremendous pickup in the amount of imports of raw materials in
China.”
China’s 4 trillion-yuan ($585 billion) stimulus spending
will help boost commodity demand by 15 percent a year for the
next five years, Holmes forecasts. Merrill Lynch expects the
Chinese economy to grow by 8 percent this year, accelerating to
9 percent in 2010, because of government spending.

Chinese Demand

Felipe Purcell, a vice president for marketing at the
Chilean unit of London-based mining company Anglo American Plc,
said March 20 there are signs that China has increased metal
buying this year as government spending fuels demand.
“What you are going to see is a rapid rebuild in demand,
particularly in places like China,” said Gary Dugan, the
London-based chief investment officer for Europe, the Middle
East and Africa at Merrill Lynch Global Wealth Management.
Commodities are “the only asset class where there is going to
be less supply in the future than in the past,” he said.
Doe Run Resources Corp., the world’s second-largest lead
refiner, said the slump is ending.
“We’re seeing better demand now, compared to the past few
months,” said Jose Hansen, a vice president of sales and
marketing for St. Louis-based Doe Run. “We’re still below the
levels we saw at this time in 2008. But I expect that demand is
going to continue to increase.”

Increased Commodity Buying

Investors also are returning. Net inflows into commodities
totaled more than $2.6 billion this year, according to EPFR
Global, which conducts research on money flows from Cambridge,
Massachusetts.
Matching expectations to reality was what led Aronstein to
say in June of last year that commodities were “near some kind
of reckoning,” because speculators had driven prices away from
supply and demand fundamentals. Now, prices don’t reflect the
potential for demand to rebound, he said.
“People are just scared to death right now, so they’re not
looking at the bigger picture,” said Aronstein, who also is
president of Marketfield Asset Management. “All these emerging
markets, like China and India, they still have a lot of money. I
can’t imagine that these countries are going to let the power go
out or let people go hungry. The basic level of consumption is
going to continue and the supply capacity has plunged. These
prices will have to come up.”

--With reporting by Claudia Carpenter and Anna Stablum in
London. Editors: Steve Stroth, Ted Bunker.

Structural change; embrace the Web

Walt Disney CEO Robert Iger on Tuesday night had to explain a 64% drop in studio operating income in the December quarter caused by lower DVD sales

Toward free or low-cost Web video

Away from traditional delivery methods, such as cable TV or DVDs.

Quantitative easing

Published: March 8 2009 17:32 | Last updated: March 9 2009 09:39

Everyone knows a shiny new bridge when they see one. Quantitative easing, on the other hand, has been a mystery to all but hardened anoraks until zero interest rates started to loom late last year. Policymakers worldwide now pin their hopes on quantitative easing’s ability to complement traditional fiscal stimuli as a means of boosting demand. Even if they feel boosting money supply worth a try, few have a genuine conviction that it will work. There are three big problems with central banks buying unsterilised financial assets. The first is signalling. The normal process of tinkering with interest rates is based on eons of data on the effect on growth and inflation. That in turn provides a framework round which future rate moves can be forecast. Quantitative easing, however, is messy. That calls for clear targets. But based on what? Targeting particular measures of money supply, bank lending (as Japan did) or long-dated gilt yields is tricky.

Even with targets, the second problem is working out exactly how much quantitative easing is enough. Very simply, whether raising the money in circulation boosts incomes depends also on what economists call the “velocity” of money. If those selling assets to the central bank simply put their spoils on deposit, for example, the potential boost from the increase in money will be tempered. Knowing the velocity of money therefore is crucial. Yet this number is hard to pin down.

The final headache lies in selecting which assets to buy. As the Bank of England showed last week, most central banks go for government bonds. But these tend to be owned by financial institutions, not the ailing companies and households that need the money most. Besides, government bonds are already super liquid. It would be preferable for central banks to swap cash for harder-to-shift assets such as commercial paper. Another plus would be that purchases of such assets would remove their liquidity discount, giving the likes of the Bank at least a fighting chance of recovering their money when things finally recover enough to sell again

Save US

The title says it all: "What Citi is Doing to Expand the Flow of Credit, Support Homeowners and Help the US Economy." It is less than subtle but this week's progress report from Citigroup, complete with cutesy nuggets about lending to small gardening businesses, is part of an overdue public relations offensive by the banks. JPMorgan's chief executive Jamie Dimon, too, is telling anyone prepared to listen that the bank made $100bn of new loans in the fourth quarter, "real loans, consumer loans, credit card loans, that kind of stuff" - even if much of that "stuff" may only be rollovers.

Such platitudes may help appease an aggrieved public. But it does little to disguise the fact that the US authorities' efforts to boost the supply of credit have so far had little effect. On Friday, figures for consumer borrowing in December will reveal whether that remains the case, after consumer credit fell by a record $7.9bn in November logging its first back-to-back monthly declines since 1992.

Should credit remain frozen, that is not necessarily the fault of the banks. A total of 359 institutions have received Treasury funds. The missing piece of the credit puzzle is consumers' willingness to borrow. Here, much-needed deleveraging has just begun. December's savings as a percentage of disposable income stood at 3.6 per cent, compared to near zero in 2007, but still well below the 6.9 per cent average since 1959. Prior to 1983, the average was over 9 per cent. Lombard Street Research suggests that the need to reduce debt plus individuals' tumbling net worth (which tends to increase the propensity to save) could push the newly frugal US to a savings rate as high as 10 per cent.

Such a shift represents another niggle to the Congressional debate over the efficacy of tax cuts versus spending in economic stimulus. True, saved tax cuts may not provide near-term economic relief. But they could hasten the transition to healthier household balance sheets. Rather like the banks, political largesse is only one part of the economy's eventual cure.

"feel like a mosquito in a nudist colony."

Dollar shortage fuels US currency’s advance

By Peter Garnham

Published: March 4 2009 11:33 | Last updated: March 4 2009 11:33

The dollar rose to a fresh three-year high against a basket of currencies on Wednesday as concerns over the health of the global economy continued to drive investors towards US assets and the dollar, pressuring supply of the currency.

The dollar also hit a four-month peak against the yen.

Its rise came despite concerns expressed by the Federal Reserve over the rising US government deficit.

Ben Bernanke, Fed chairman, suggested there was a fear in the future that global lenders could “balk”, if the US were not able to control its budget deficit.

“Under normal circumstances, a rising deficit works against the domestic currency,” said Hans Redeker at BNP Paribas.

“However, in this environment, deleveraging by institutions in order to clean up balance sheets will provide the dollar with a natural bid.”

This deleveraging helped create a dollar shortage that drove the US currency sharply higher against the euro after the collapse of Lehman Brothers last September.

Analysts said a similar situation seemed to be developing as equity markets plunged below their lows from last Autumn.

“Although the most intense period of European banks closing funding positions for US subprime and other US structured products seems largely over, deleveraging may not be finished as an FX driver,” said Ray Farris at Credit Suisse.

Derek Halpenny at Bank of Tokyo Mitsubishi UFJ said with carry trade positions now unwound, the dollar shortage problems that had been evident since the collapse of Lehman Brothers were now supporting the dollar against the yen.

The yen found support in the wake of Lehmans demise as asset markets plunged and carry trade investors unwound positions in higher-yielding assets that had been previously funded by selling the low-yielding Japanese currency.

Mr Halpenny said Japan was now trying to alleviate its funding gap, estimated in a report earlier this week to stand at $600bn by the Bank for International Settlements, by utilising is foreign exchange reserves.

Japan announced it would lend Japan Bank of International Co-operation $5bn to alleviate the strains on companies.

“The JBIC announcement in Japan and the BIS report both underline the scale of dollar demand that persists and the process of deleveraging suggests continued dollar support that now also includes the dollar/yen rate with yen carry positions liquidated,” said Mr Halpenny.

The dollar index, which tracks its progress against a basket of currencies, rose to a high of 89.552, its strongest level since April 2006.

The dollar rose 1.2 per cent to Y99.30 against the yen, gained 0.3 per cent to $1.2515 against the euro and climbed 0.5 per cent to SFr1.1810 against the Swiss franc.

The yen also fell 0.9 per cent to Y124.32 against the euro, lost 1.5 per cent to Y139.90 against the pound and dropped 1.5 per cent to Y63.47 against the Australian dollar.

The pound edged higher against the dollar, however, rising 0.3 per cent to $1.4087 after UK economic data came in better than expected .

UK consumer confidence edged higher last month while the service sector purchasing managers’ index also rose unexpectedly.

Howard Archer at IHS Global Insight said news on the UK services sector was particularly welcome given the sector’s dominant role in the UK economy and gave a limited boost to hopes that the rate of decline in activity might be bottoming out, even if recovery still looked a very long way away.

But he said the news was unlikely to stop the Bank of England taking further action to boost the economy after its monetary policy committee meeting Thursday, as the economy was still deep in recession while inflationary pressures were waning markedly.

“We expect the Bank of England to cut interest rates by a further 50 basis points from 1 per cent to 0.5 per cent despite some reservations within the MPC about how much overall good this will do,” said Mr Archer.

“In addition, the Bank of England seems highly likely to announce that it is to commence quantitative easing.”

The pound rose 0.6 per cent to £0.8880 against the euro.

Dollar strength will linger

By Mansoor Mohi-uddin

Published: March 4 2009 16:06 | Last updated: March 4 2009 16:06

The inability of non-US banks to roll over short term funding of investments in illiquid US assets has been a key factor behind the dollar’s strength since last summer – and should continue to support the greenback, says Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS.

“At the height of the credit bubble in mid-2007, the Bank for International Settlements estimates that major European banks’ dollar funding needs was around $1,300bn,” he says.

“As the credit crunch ensued and then worsened after the bankruptcy of Lehman in September 2008, securing this funding became very difficult due to the severe disruptions in interbank and foreign exchange swap markets and in money market funds.

“Also, some central banks withdrew dollar foreign exchange reserves they had placed with commercial banks before the crisis.”

Mr Mohi-uddin notes that to ease the dollar shortage, the Federal Reserve provided swap lines with other central banks in October 2008. These have been extended until October this year, reflecting the need of foreign banks to keep borrowing dollars from domestic central banks.

“Of course, foreign banks also bought dollars in the spot markets, as evidenced by the drop in euro/dollar since last summer.

“While the dollar funding shortage in global banking persists, investors in the foreign exchange spot markets should expect the greenback to stay supported against the other majors.”