While the US worries about an economic slowdown, the booming Persian Gulf Arsb states face a serious inflation problem which would usually demand rate rises, not cuts.

Persian Gulf Arab policymakers have little choice but to reform currency policy to prevent economies from overheating.
According to Middle-East-Online.com, Arab central banks are struggling to persuade financial markets that they won’t tinker with their dollar pegs, as their currency policies are increasingly costly to defend and may have become unsustainable.
After a flurry of public disagreements over currency reform last year, Persian Gulf Arab central bankers are trying to close ranks, talking up the pegs as a source of stability and playing down the dollar’s weakness as a temporary phenomenon.
But markets are still betting on the chances that Persian Gulf currencies will be revalued, or that governments may even scrap their long-standing system of fixed exchange rates altogether.
Persian Gulf policymakers have dutifully tracked a series of US interest rates cuts, including two totaling 125 basis points in the past fortnight alone, to deter investors from betting that their currencies will appreciate.
But while the United States worries about an economic slowdown, the booming Persian Gulf states face a serious inflation problem which would usually demand rate rises, not cuts.
Unsurprisingly, the market speculation refuses to go away. Kuwait uncoupled its dinar from the dollar last May and pressure is growing on the remaining Persian Gulf Arab states to follow suit as their economies fall out of step with the United States’.
Policymakers may hold their ground for a while, and put on a show of unity as they are supposed to be preparing for a common currency in the Persian Gulf, but the price will be high. Inflation has become a political hot potato in the Persian Gulf. It has overtaken official lending rates in five of the six Persian Gulf states preparing for monetary union.
Arguments that the status quo brings stability have begun to ring hollow as governments are forced to raise wages, and impose controls on rents and food prices to contain public discontent.
Banks are complaining about lending curbs, and migrant workers have rioted over the dwindling value of their earnings back home as the dollar’s weakness holds down Persian Gulf currencies due to the pegged exchange rates.
Inflation is at 16-year highs in Saudi Arabia and Oman, a 19-year peak in the United Arab Emirates and just off record levels in Qatar. The regional policymakers are intervening directly in loans, property and commodity markets to offset rate cuts. But there is a limit to what they can do when borrowing costs have fallen through the floor.
Central bankers, including the UAE’s Sultan Nasser Al-Suweidi, have said the dollar pegs are not to blame for soaring real estate prices, the main driver of inflation across the region.
New housing supply will take the heat out of price rises, central bankers, including Qatar’s Sheikh Abdullah bin Saud Al-Thani, have contended. But real estate price inflation cannot be blamed fully on supply constraints, when the negative interest rates across the Persian Gulf spur demand for credit.
Mortgage lending in the UAE, which opened its property market to foreign investment as early as 2002, almost doubled in the year to June to 45.7 billion dirhams ($12.45 billion).
Saudi Arabia is fighting inflation at 6.5 percent with an official lending rate of 5.5 percent. This week it said it would raise state employees’ salaries by 5 percent and subsidize everything from shipping costs to driving license fees.
Other Persian Gulf countries have also introduced social welfare policies, from ceilings on rent rises in the UAE, Oman and Qatar to food subsidies in Kuwait and a 70-percent wage rise for some Emirati federal government employees.
Qatar said it would boost its port capacity to allow more imports and control the price of building materials to fight inflation at 13.7 percent in September, just off a record.
“Non-market measures such as higher subsidies, allowances, irrational wage increases, caps on rents are mostly ’soon to be inflationary’,“ Merrill Lynch said in a note. “With rising costs hidden by subsidies and transfers, domestic demand will continue to grow unabated,“ it said.
With their hands tied, Persian Gulf Arab policymakers have little choice but to reform currency policy to prevent their booming economies from overheating.

Microsoft is desperate to grab a bigger share of the online-advertising market.

It is a potential deal that has been talked about for years, but has suddenly become a real possibility.
On Friday, February 1st, Microsoft, the world’s biggest software company, made a $44.6 billion offer for Yahoo!, an ailing Internet giant. The proposed deal, which would transform the software and Internet-services industries, values Yahoo! at $31 a share, a 62 percent premium over the closing price on Thursday.
According to Economist.com, in a letter to the board of Yahoo!, Microsoft’s chief executive, Steve Ballmer, referred to previous discussions between the two companies in 2006 and 2007 about a possible partnership or merger. At the time, Yahoo! was hopeful that Panama, a new system it had developed to place advertisements next to the results of Internet searches, would improve its fortunes and help it to catch up with Google, the leader in both Internet search and advertising. Panama failed to live up to expectations, however, prompting Yahoo!’s chief executive, Terry Semel, to resign in June 2007.
His place was taken by Jerry Yang, one of Yahoo!’s co-founders, who promised to put things right at the sprawling Internet conglomerate. But Yahoo!’s latest results, released on January 30th, were disappointing, and its share price fell to a four-year low. Yang said that the company faced “headwinds“, as Yahoo! announced plans to cut 1,000 jobs, some 7 percent of its workforce. Microsoft saw its chance.
Google is not mentioned anywhere in Ballmer’s letter, but its increasing clout in the online-advertising market, as a result of its leadership in search, is what has motivated the deal. Combining Yahoo!, the number two in search and advertising, with Microsoft, the number three, would provide a stronger competitor in an industry where scale provides a huge advantage.
Google currently handles 66 percent of searches on the Internet in America, compared with 21 percent for Yahoo and a mere 7 percent for Microsoft. Strikingly, over the past year both Microsoft and Yahoo have seen their share of searches decline while Google’s has gained.
The more people use your search engine, the more advertisers you can attract; and the more advertisers you can attract, the more likely you are to be able to serve up relevant advertisements that people will actually click on.
Microsoft is desperate to grab a bigger share of the online-advertising market because many of its software products are being challenged by free, advertising-supported services offered by Google. The company is also worried that Google’s dominance in search and advertising allows it to dictate terms to advertisers, and gives it an unfair advantage over its smaller rivals.
This is a bit rich coming from Microsoft, a convicted monopolist in operating-system software, which has also been known to squeeze out smaller competitors, but its anger that it has had to endure years of scrutiny by regulators, while Google has been left alone, is genuine.
As well as creating a stronger rival to Google, the deal would also have other merits, Microsoft claims. The two companies could combine their research-and-development efforts into search, advertising and other areas; they could save money by consolidating the huge warehouses full of computers, known as “server farms“, that both firms operate; and they would be better placed to compete in new areas such as online video, social networking and online commerce. But it is clear that the real prize is greater clout in search and advertising.
Whatever Yahoo!’s management makes of the offer, the firm’s shareholders will be delighted at the news. Microsoft says it is confident that regulators will approve the deal, which could be completed by the end of the year.

The growth of China and India has caused significant policy shifts across Asia as countries used to absorbing the attention of western politicians and investors suddenly find themselves in the shadows, approaching obscurity.
About the only thing that now attracts global attention to these countries tends to be of the wrong sort, such as natural disasters and terrorist attacks.
As reported by Atimes.com, the impact of the two growing markets in the midst of world economy in a downward spiral simply means that competitors will have to pay up dramatically to garner attention from capital providers, let alone actually get any money.
More than India, it is China that has helped to push ASEAN into economic irrelevance, as the country vacuumed up first the lower end of manufacturing and then increasingly absorbed value-added industries.
This has left vast swathes of industry in countries like Vietnam and Malaysia completely unviable in the face of competition from the Asian giants.
Lacking the strategic depth required to offer domestic consumption, ASEAN has found member countries’ reliance on exports suddenly poisonous. The dilution of their trade protocols with China helped to diminish tariff protection accorded to key industries such as computer hardware and automobile parts, in turn destroying the growth potential if not the actual existence of many manufacturing plants.
That has in turn changed the role of ASEAN from value-added manufacturing to more basic industries, such as the export of agricultural produce, mining and energy.
Central banks around ASEAN have failed to catch on to the need for their domestic markets to account for an increasing portion of economic growth, which would have allowed them to free up their currencies. Instead and thanks mainly to the Asian financial crisis of 10 years ago, the region’s currencies are still “managed“ to provide competitive advantages for manufacturers in what must count as one of the most futile tasks in the global economy today.
In the days of yore, that is 10 years ago, ASEAN benefited from significant competitive advantages in the raising of capital. This in turn meant that the region’s producers could easily ramp up capital-intensive industries, which amplified the productivity advantage against China and India. In the years following the Asian financial crisis, capital has flowed freely into first China and then India, effectively neutralizing any advantage that ASEAN used to possess.
The gap between the domestic technological prowess of ASEAN and that of China and India has reversed completely. The delicious irony of this development is that the same Indian company is reportedly the front-runner to buy the Jaguar and Land Rover units of Ford Motors, showing that it can raise substantial capital at short notice even in the context of the current crisis in credit markets.
While the strategic consequences of China’s growth have been most dramatically felt by Taiwan, whose efforts to remain recognized by a motley crew of Pacific islands and South American countries have met exponentially growing obstacles with every year, the same effect is now being felt across the rest of the region.
South Korea has been at great pains to increase the contribution of its services sector and has of late been projecting an image of Seoul as the new financial center for North Asia.
This is because a country of 40 million people could simply not hope to both innovate and manufacture competitively against China for the next 20 years.
This is why the thinking among South Korean businessmen with respect to North Korea is shaped by the need for access to cheaper manufacturing facilities.
That has in turn imposed strictures on what any South Korean government can do and say with respect to the North.

Starbucks risks becoming a mere commodity and needs to better focus on the consumer.

The coffee isn’t tasting too sweet at Starbucks at the moment. Recently coming bottom in an independent UK taste test of the main coffee chains, the US giant has seen its sales fall in its main home market for the second quarter in succession.
According to BBC, with its share price also having declined more than 40 percent over the past year, the Seattle company’s founder, Howard Schultz, returned to the chief executive role last month to try to turn around the firm’s fortunes.
While Starbucks is undoubtedly being hit by the wider slowdown in consumer spending in the US, analysts say the problems at the company run much deeper.
Schultz has himself been brutally honest about where Starbucks has gone wrong, admitting that it now has too many outlets in the US, which is “cannibalizing“ sales between branches only a short distance from each other.
Also bemoaning a dilution of the “Starbucks experience“, he said the firm had lost its focus. “When you succeed at this level for so long you get a little soft,“ says Schultz. “We have to get back to what made this company great, and that is to have the courage and curiosity, and commitment, to do things that have not been done before.“
The core problem for Starbucks is that its stellar expansion of the past decade has tarnished the exclusive, upmarket image that made it so popular in the first place.
Once a happy, even smug refuge for go-getting professionals and fashionable students tapping at their laptops over a Venti Frappuccino, Starbucks billed itself as the “third place“.
It wasn’t home or the office, but a combination of the two--a good place to relax or work. From 84 US stores in 1990 to 1,000 in 1996, it is not an overstatement to say Starbucks revolutionized how Americans drank coffee and how much they were prepared to pay--rather a lot.
Fast-forward 12 years, and Starbucks now has more than 10,000 American outlets. In the big US cities they are seemingly everywhere.