Just Look at the Family Jewels

Shiny objects are not only just pleasing to the eye—they often represent fluctuations in the global economy. The fact that investors infuse a copious amount of money into gold is well known.  The price of the metallic substance has reached $1,900 this past week.  Often times, the possession of gold shares is usually indicative of personal fiscal prosperity.   However, in recent times, growing prices are also beginning to venture into facets of a similar economy—gemstones.

            International dealers of precious gems have stated that “prices for high-quality rubies are up by 50% this year and have doubled in the past two years”.  Top-notch sapphires and emeralds have also nabbed considerable gains in price as well.  This boom has even had far-reaching repercussions in the market of semi-precious stones, boosting up by “20-25 % this year”.  Certainly, there are several potent forces instigating the price rises.

            First, one only has to look at the insatiable demand stemming from rapidly-growing economies like China and India.  Both countries have a long-standing obsession with colored stones, in part due to a positive connotation in consumer’s tastes (eg yellow sapphires in Hinduism).  Because of this passion for gemstones and willingness to have expensive supply costs, Chinese wholesalers are often setting the equilibrium price.  The yuan has become the denominating currency for gemstone prices, beating out the dollar in fierce competition.

            Second, another leading influence is economic insecurity.  Similar to gold, gemstones are perceived by some as a tangible store of value in tumultuous times.  Lately, “dealers are increasingly being asked to put together entire collections for wealthy Americans who want to diversify away from paper investments”.  The desire to possess a concrete symbol of affluence leads many to buy luxurious, costly products.

            Lastly, a third factor is definitely supply shortages.  Good quality colored-stones are difficult to find whatever the economic climate.  The outfits digging for them are infinitesimal compared with the giant diamond corporations.  Major producers, like Madagascar and Myanmar, are too entrenched in dysfunctional politics to engage in serious trade.  With such losses, the Law of Supply says it all.

(Information taken from “Rubies in the Sky”, The Economist September 10th 2011)

All the World's a Game

With increasing improvements in software technology, new breakthroughs in the economic realm occur frequently.  One such development manifests itself from the game theory—which exhibits calculated circumstances where a person’s success is based upon the choices of others.  Essentially, by taking this conceptual basis and compounding it into an augmented digital format, a program can be developed to “guess” the actions of particular entities.   The software’s versatility is almost immeasurable, with ranging capacities from settling divorce settlements to mediation between warring states.

            For instance, Bruce Bueno de Mesquita of the Mesquita &Roundell consulting firm, was able to successfully predict that “Egypt’s president, Pervez Musharraf, would fall from power within a year” and that “Pakistan’s president, Pervez Musharraf, would leave office by the end of summer”.  The computer model Mesquita uses functions by first assigning numerical values to the goals, motivations and influence of “players”.  Then, the program considers the options available to the various players and determines their likely course of action.  In this way, “game theory software played an important role in finding Osama bin Laden's hideout in Abbottabad, Pakistan”.  Mesquita’s application of the game theory allows users to exploit a highly-structured methodology that churns out statistics of critical import.

  Of course, forecasts can go astray when people give in to non-rational emotions, like hatred or guilt, rather than pursuing what seems to be currently in their best interests.  Sorting out people’ motivations is much easier when making money is the main objective.  Even so, these advancements in game theory have “picked up dramatically” and it has become apparent that forgoing utilization of such an analysis technique could demonstrate to be an exorbitant opportunity cost.

In a world where every favorable circumstance needs to be taken advantage of to move ahead, the game theory will inexorably prove to be an extremely helpful asset for solving a myriad of problems— with infinite implications for the future.

(Information taken from “Game Theory in Practice”, The Economist Technology Quarterly September 3rd 2011)

The Frigid Quest

           As demand for oil proliferates, multinational gas corporations desperately search for new and innovative methods for drilling.  Oil sites that were prosperous and immense a few decades ago are finally reaching their limit points, prompting realization of the obvious: the world is gradually drying up.  There seems to be two primary responses to this spreading phenomenon—either increased investment in energy ingenuity or revamped exploration of oil in the most isolated sections in the world.  Fiscal powerhouses like Exxon Mobil, Royal Dutch Shell, and Cairn Energy of course chose the latter, desperately wanting to keep the status quo and attain results as soon as possible. 

            Russell Gold of The Wall Street Journal discerns the Arctic Circle as the hotspot where avaricious oil moguls now have their sights set on.  Even though the region encompasses a tiny fraction of the earth’s land mass, “it is estimated to contain the oil and natural-gas equivalent of 412 billion barrels of oil”.   This translates to about “22% of the world’s undiscovered oil and gas”.  Should drilling prove to be successful, there is a wealth of unspoiled natural resources to be unearthed.  Peter Robinson, a retired Chevron vice chairman, notes there is much scientific, not only financial, reason to drill, stating. “All around the coast of Russia, geologists salivate over the opportunity to drill”.

            Exxon Mobil and the like followed the concepts of simple economics.  A chance presented itself to make companies better off and those companies exploited it.  But of course, there are still concerns, drawbacks, and costs.  The extreme weather and ice flows during the bitter months of the arctic could potentially maul apart oil industry platforms.  Even more, as Gold also points out, “Cleaning up an oil spill would be a huge effort”.  The agility of a massive response to such an emergency would be infinitesimal compared to any accident in the Gulf.  Additionally, the range of environmental implications of drilling has yet to be properly tested.  The marathon to get a piece of the upper northern hemisphere has resulted in dodging of industrial regulation and setup of proper procedural standards.

            The race to get to oil is not pointless, but in my opinion, it seems counterproductive.  Billions of dollars are being invested into an oil funnel that, in a small lapse in time, will eventually close over.  Instead, as I mentioned before, resources should be allocated to innovation projects, which solve the problems of tomorrow and dually inspire competition and collaboration.  Becoming dependant on a commodity that invariably becomes extinct soon hardly makes much sense.  Let’s face it; oil is simply not as ubiquitous as it once was.  The golden era of oil availability is coming to a close.  Reminiscing of the past is meant for home movies, not the global economy.