Not interested in the US anymore ?

So says Huawei. Really ?? No, not really. They are very interested in the US. Its just that they have realised that the doors to the US are simply shut for them. There has been a spat going on between the US politicians and Huawei for some time. It looks like the politicians have won.  And it begs the bigger question - can any company in the world be exclusively in one country or region (however big that might be) and hope to be a major player in the world.

Huawei is a telecoms company. They sell networking equipment significantly cheaper than say Cisco. They used to be crappy ( Cisco would snigger at the mention of their name). Not any longer. Same quality, half the price. In an uncomplicated world, companies  should be falling over themselves to buy from them.  But then, the world is not an uncomplicated place.

Huawei is a Chinese company. So what, you might ask ? Huawei's founder and leader was formerly in the Chinese army. Still so what ? Well, the ties with the Chinese government/army/party (same thing) never go away and its quite possible that Huawei will do whatever the Party in China asks it to. Huawei is not a transparent company. It largely refuses requirements that it be so.  And cyber espionage and hacking are weapons that the Chinese government uses against other countries constantly.The world's chief bugger (if you will pardon the bad pun) is China.

So Huawei is a pariah right. Wrong ? The US, and possibly every other major country does the same thing. Except that Obama cannot order Cisco to spy on his behalf while Xi Jinping can so order Huwaei. But then there is enough regulation and oversight in the US to prevent that from happening, or at least knowing that it is happening. And its not at all certain that Huawei would do anything major in the spying arena - its a $35 bn company. If its shown that it is doing something underhand, overnight, it would be expelled from the entire wold. But pompous Senators have repeatedly blocked Huawei from winning major deals in the US. Huawei has tried hard, but has won nothing. In frustration, they have simply given up. The beacon for capitalism and freedom, of course, does not think of the US consumers' interests (of getting things cheaper) and, of course, Cisco and other US competitors have been scrupulously fair , have never lobbied to stall Huwaei and surely windbag Senators have only the national defence of the US at heart.

Begs a question - why is only the US so paranoid. Every country in Europe has no problems dealing with Huawei . Even India, normally a completely paranoid country has plenty of Huawei here. The Chinese brass of Huawei in India go around with names like Ashok Li and Sundar Zhang. By the way, I have to recommend that Ramamritham Liu and Rajalakshmi Wang would also be worthy additions to their team. The only offense they have done to India is to start a Chinese canteen of their own on the grounds that what goes for Chinese food in India is unrecognisable by them and surely Gobi Manchurian is an abomination !

So what will happen to Huawei. They have admitted that they will have to revise their growth plans downwards. Without being truly global, no company can aspire to the big league. 

Or is that really true ? Could a company that's almost exclusively in one country be the largest in the world in its field ? We'll examine that in the next post.

Bye Bye New York Stock Exchange

OK - the title is pure hyperbole. The New York Stock Exchange (NYSE) is going nowhere. But the company that owns NYSE is just being bought over. The curious part of the story is that the acquirer does not really want the NYSE, but it comes as part of the package- so he has to take it !

Here's the deal. NYSE is part of a conglomerate called NYSE Euronext. The conglomerate consists of NYSE itself, Euronext, which is a combination of three European stock exchanges and Liffe which is a London based derivatives exchange. NYSE and Euronext are ugly spinsters nobody wants. The beauty amongst the beasts is Liffe. For it is the sexy new hottie - a derivatives exchange.

And therein lies the story. In the modern day casino , that is finance , equity exchanges like NYSE are worthless as businesses. Margins are supposedly low. Stock exchanges are the places where almost all companies that require capital list and that's where investors channel their savings into productive investment. One would have thought that  the raison d'être for financial markets was to fulfill that objective, but obviously I am an old foggie.

In today's world, the money is all in running commodities exchanges,  derivatives markets etc - not boring old equity. The acquirer is a company called ICE that did not exist before 2000 (for the record NYSE was founded in 1817). ICE purely handles derivatives trading. The career of Jeffrey Sprecher, the CEO of ICE says it all. He started his career building power plants.  But he realised that there was more money (in facts tons more money) playing on financial contracts relating to power than in generating power itself. So he started ICE , obscurely in Atlanta, in 2000. See where he has got to in 12 years.

We've now come to a stage where even the NYSE is an unattractive prize - in fact positively repellant. Given a choice Mr Sprecher would probably spin off NYSE, or sell it off somewhere or simply forget about it. Unfortunately that is politically simply unthinkable. So he has to live with it and make pious noises of how important it is.

Its a symptom of where the world is going.  This post is one sided and biased (whoever said that a blog has to be objective !). Derivatives markets are not all evil and equity markets are not all saints. Both serve useful economic purposes. But you can see where this is headed. Esoteric, ununderstandable financial structures are getting to be more important than the underlying asset itself. That's why, a wise old fox from Omaha, back then in 2003, called derivatives a weapon of mass destruction.

Many years ago, when the world was a simpler place and when this blogger was a young man (!), he went to 11 Wall Street, entered the visitors gallery of NYSE and gazed at the trading floor in awe.  Little did he know that not in the too distant future, this lovely lady was going to be thrown out into the street as an ugly old crone.

Stooping to conquer

I am getting tempted to write political posts, despite all my resolutions to stay away from that area. The culprit is my good friend Sriram who continuously tempts me in that direction with incisive writing in his excellent blog. We then debate and counter debate on email !!

So made a guest post there - taking the crazy liberty of  writing a letter to the President of the United States !