Arbitrage and speculation get a bad rap sometimes, but they're incredibly useful.
I'm leaving Ulaanbaatar shortly and I'll be heading to Japan. I went to stock up on some basic supplies - personable consumables and work stuff.
Strikingly, paper is really expensive here for Western-grade, Western-style paper. The local shops literally don't carry it. Instead, they have this checkered sort of paper. It's like graph paper, but with thick black lines. I prefer black ink, and after trying out one of those notebooks, I couldn't read what I'd written.
I tried some of the upscale department stores (Sky Department Store, State Department Store) and there's literally no Western-style, 60 sheet lined notebooks in the $1 to $2 range like you'd see in the USA. They have high end notebooks for $6 to $12, and they have these thin flimsy 20-page booklet-type things for around $1. I settled for the booklet.
Now, if there was the demand to make it worth it, someone importing Western style paper from China at 20 cents a notebook and selling it here for $2 per notebook would be creating a lot of value. If this presented a large enough opportunity, eventually you'd see the margins go down towards cost, as happens in almost all industries.
There's frequently hostility to people who arbitrage, speculate, and make their income on trading-type activities. There has been for hundreds of years, predating even the Industrial Revolution.
But man, those people create a ton of value. And the thing people don't realize about arbitrage is that participating in it closes it off. If prices on a good are at $1 in one market and $1.10 in another market, then looking to arbitrage them eventually ends it. You start by buying as much $1 units as you can and sell as many at $1.10 as you can... but eventually you've bought/sold all you can at those demand levels, and the market moves towards $1.01 and $1.09... you continue arbitraging and it goes to $1.02 and $1.08... and so on.
That's simplified, there's exceptions, and buying/selling prices don't move at the same time consistently.
But the point is, people facilitating commercial transactions create a lot of value. First, by participating in arbitrage, you eventually end the ability to do so and equalize prices between regions. This helps the sellers and buyers you're transacting between.
Sometimes it creates goods where they weren't.
Even in pure electronic arbitrage where you're talking fractions of percents, speculators and arbitragers add liquidity to the market. Liquidity is hugely valuable - everyone underestimates it until they go to sell a house or car on a deadline and can't get what appears to be the market price. More speculators and arbitragers there help a lot.
When I left Los Angeles at the end of 2009, I wasn't able to sell my car. A friend of mine was kind enough to pay me $700 less than the going rate immediately, and he made a few hundred dollars profit a week later when he sold it. Liquidity - he bought low from me, sold for higher shortly afterwards, and was compensated for his time, risk, and for providing a valuable service to all parties.
So - god bless the arbitragers and speculators. I wish there were more of them, and I wish I could buy a decent notebook here in UB.
It's common, even in many western countries, to call this kind of activity 'price gouging' or 'taking advantage' and ban it, leaving consumers with no option but the inadequate local variety. Free marketers often use the refrigerated truck guys selling expensive ice after a hurricane (who were then run out of town by the police) as an example. I like to remind myself that when I'm shelling out six bucks for a box of cereal with only two serves in it at my local supermarket.
Speaking of which, I'm in Tokyo so if you're looking for in the neighborhood to grab a green tea with, feel free to drop me a line.
It was surprisingly difficult to find a decent, high-quality notebook here in the heart of Taipei. I went to almost a dozen stores before finding one.
I was thinking, "What is this, is paper a luxury good here in Taiwan?"
And then it occurs to me -- maybe paper will be a luxury good in a few years. Probably tablet computers and other computing surfaces will be good enough at that point so that the loss isn't strongly felt... but it's not hard to envision a world where a standard paper notebook costs between $5 and $7, and you have to go to a specialty store to get it.
EM bonds are being sold off with India and Indonesia leading the way, joined by Thailand close behind down 9 trading days in a row (20% decline since may, worst since 1998). Equity markets are being sold off with the Indian banking sector down 2.5% Monday, (35% from the highs), while the worsening situation is in the Philippines exchange. The IDR has collapsed by 3.9% overnight (biggest drop in 5 years), while the INR fell from its best day in 11 months to end the day 1.5% lower. Elsewhere the TRY has hit fresh lows against the EUR. With FED tapering on the horizon, moderate bids of the US Treasuries continues with more demand expected in the coming weeks, as capital floods out of emerging nations and into the security of US paper.
Effects of tapering by the FED have begun to shape, as emerging market currencies begin to decline sharply. The worst fear is that domestic borrowers in these countries may not be able to pay back their dollar-denominated loans. In part, realizing a worst case scenario wherein, defaults across the domestic banking sector resulting in banking losses, or even failures across emerging nations. The IMF has warned against a rush to exit from ultra-easy policies that have been put into place to spur growth. Speech by Christine Lagarde, IMF Managing Director, "Policies and policy coordination are not yet where they need to be. Failing to act at the global level, with each country playing its part, could put the global recovery at risk… I do not suggest a rush to the exit. UMP (unconventional monetary policy) is still needed in all places it is being used, albeit longer for some than for others. In Europe, for example, there is a good deal more mileage to be gained from UMP. In Japan too, exit is very likely some way off."
The initial statement of creating a consortium of central bankers exists in smaller central-European and east-Asian nations, but not between major and emerging nations. The fears of FED tapering have rattled emerging nations in the past week, currencies are depreciating against the USD, as per the below matrix:
Turkish CB has been attempting to control TRY weakness via regular auctions
-TRY auctions are usually around $50mio, latest policy meeting changed to $100mio