21 August 2011

Apple Has Eclipsed Eurozone Banking Sector

According to Reuters, the ongoing losses in the Eurozone banking sector has lead to a total market capitalization of the top 32 Eurozone banks that is a bit less than Apple Computer.*

While all may hope for a resurgence in the value of these banks, and a stabilization of the underlying economic system that these fine corporate citizens manage for us, this is the sort of telling moment that historians will point to when they construct a narrative of how the world economic system is changing at this time.

An ongoing theme of this blog is the 'plutonomy' - a term coined in an infamous but prescient Citibank memo, authored by Chief Global Equities Strategist Ajay Kapur, which noted that most of the economic growth in developed countries world-wide was driven by the the wealthiest sector of society.  The links to this memo seems to be down, and a closer look at the genesis of this idea will take several posts in any case.  But the term plutonomy has received its widest celebrity from Michael Moore, putting a spin on it as only he can.

As much fun as indulging in polemics can be, the issue of the plutonomy arises occasionally in both the left and right wing press, and often in relationship to Apple.  Because Apple is so profitable and successful in capturing a high-margin share of the consumer market at prices roughly twice as high as the general competition, Apple is treated as the test case for whether theories of plutonomic domination apply to the economy as a whole, not just the financial sector.  A thoughtful conservative discussion of this issue was put forth by Reihan Salam, just 15 months ago, when Apple eclipsed Walmart's star:
The rise of Apple illustrates a number of social trends. Consider that Apple, a company that serves relatively affluent consumers and a handful of electronics-obsessed imbeciles (that's me), is now worth more than Walmart, a company that serves a far larger number of working- and middle-class Americans. Apple's success amidst the downturn, fueled by robust sales of the iPhone and more recently the iPad, is an almost perfect illustration of Plutonomics at work.
In order to update this observation, as of today, 20 August, 2011, the market capitalization of Apple is at 330 billion dollars.  This is up from 220 billion dollars in May of 2010 when Apple first eclipsed WalMart.  WalMart now has a market cap of 181 billion, a decline of 17%.

*As noted in the linked article, the French Banks have some restricted stock that is not included in the calculated market capitalization. So the value of the banking sector is somewhat more than the reported market cap.

Detail from Le Fils de l'Homme, Rene Magritte -- 1964.  Fair use of low-resolution detail of the copyrighted image for critical purposes hereby asserted.   Magritte was born in the Walloonian province of Hainaut, not that of Luxembourg. But who is behind that apple, under that bowler hat?

18 August 2011

Luxembourg residents - why don't you know that you are millions of dollars in debt?

...perhaps because you are not.  Either way, you would expect Foreign Policy to have editors who understood public finance before reporting such dire news.

The article in question, by Eric Pape, is either a weak attempt at journalism or a weaker attempt at humor.  The punch line is that Luxembourg is rotten, some sort of scam, because while is has among the highest GDP per capita, it has achieved this by accruing astonishingly high debt:

In the dark heart of Europe lies a nation rotten to the core. Renowned as a secret banking haven where North Korean leader Kim Jong Il allegedly squirreled away billions of dollars, its economy is tied to the whims of capricious global money markets. The country's per capita external debt is 84 times that of the debt-ridden United States (some $3.76 million for each man, woman, and child). 
Not only does this terrible debt loom beneath the fraudulent prosperity of Luxembourg , but the apparently smug Luxembourgeois are, ironically, unaware of this 'abyss' in spite of the sophisticated airs they affect.  What fools!

'Looking Over the Cliff'

But Pape's numbers do not add up.  Indeed, how can the external debt be so high when the public debt, according to the CIA Factbook, stands at just 15.2% of GDP, making the Grand Duchy the 119th most indebted nation in the world?  The discrepancy is explained by a comment made in the online edition of the magazine, posted by 'DEMGAR':
To be clear on the "External debt" issue, this number includes ALL debt issued in Luxembourg, not just government debt. Because Lux acts something like a flag of convenience for a lot of multi-national corporations, this number as compared to pop or GDP is nonsense. Companies like Apple and Amazon have their European HQ there, and companies like Arcelor Mittal and Skype have their global HQ there. Just because Apple (hypothetically) issues 1bln in EUR debt using the Lux markets, doesn't mean that the citizens of Lux have any obligation to pay it back at all. No more than US citizens have an obligation to pay back the debt of GM or Bank of America for example... Oh wait! HA! Well, I don't see Lux making that same folly.
That last dig about the US government was a bit cruel, I think.  But I can hardly hold it against Demgar if one of the most prestigious American journals should publish an article, whether humorous or sincere, based on such a serious and easily corrected error.

Looking Over The Cliff, from The Century Magazine, November 1883  --  Winslow Homer, 

wood engraving on paper
Smithsonian American Art MuseumThe Ray Austrian Collection