Professor Stanley Fischer on Israel & The World Economy

Below are notes from a friend of a friend from the meeting with Professor Stanley Fischer on Israel & The World Economy on December 2, 2010

• Voted Central Banker of the year.
• Traditionally he gives economic update this time each year.
• Israel got through global crisis relatively well. Countries which didn’t have financial crisis got through the global slow down much better than those that did have financial crisis.
• No Israeli banks had any substantial financial problems.
• Israeli economy outlook. Key questions to ask are; what are interest rates (NY & London) doing in countries they have key business and export relationships with and what are growth rates.
• 2011 advanced economies growth expectation below 2010 modestly and for 2012 slightly better.
• OECD looks for 8% growth in trade 2011 & 2012, they are consensus, no opinion on their accuracy just a useful reference point.
• 70% of Israel’s exports are to Europe & US, export nearly half of their GDP.
• Largest level of unemployment going into recession at 5.9% and then unemployment went to 8% versus their fear it would hit 9%.
• Having more foreign reserves is better than having too few reserves. Countries with higher reserve levels did better than countries with lower reserve levels. He increased reserve levels from $22 bil (which was too low) up to $70 bil (which is high for a country with a GDP of $210 bil) but where he wants it to be. It was funded with borrowings at a cost of 2%, higher than the rates it earns on its dollars assets but is the position he wants to have. He makes huge “investment bets”. Deliberately underweighted US dollar then massively overweighted it.
• Government cut spending from 51% of GDP down to 42% of GDP. Needed to address structural problems by changing its budget. Cut social services and entitlements. Went into recession with a budget that wouldn’t permit increased spending without commensurate expense reductions.
• Gross public debt was 100% of GDP in 2003 and as of this year is now below 80%.
• Israeli’s FX policy is to intervene in the market in the case of fluctuations in the exchange rate that do not match fundamental underlying economic forces.
• “Macro-prudential measures” hasn’t reached popular vernacular as a phrase yet, but will. Revisions made on an institution by institution basis without sufficient awareness of systemic consequences. Moves seem prudent on a stand alone basis often are not.
• Australia housing prices up 250% in this decade. Israel recently, after having been flat, up 40%. The textbook response to a crisis is to reduce interest rates. It has consequences and the result is cheaper R/E affordability and as a result housing price inflation. Major crisis are often tied to excess leverage and speculation.
• Israel is not smarter than other countries. Israeli banks went bust 25 years ago and had to be bailed out. We were determined not to repeat that mistake. However, the cumulative memory is about 25 years so I hope they don’t repeat that mistake now. Throughout the crisis the Israeli bank examiner made the banks continuously increase bank capital. They focused on Basil III and bank capital is presently up to14%.
• They spend 7 ½ % of GDP on defense spending, almost double the level of the US.
• Less worried than others about QE2. Doesn’t think every country can set their exchange rates versus the dollar. Sees this as perfectly rational in a world where interest rates are zero. Prefers the policy to be whatever drives US economic growth, that is the key variable. There is a problem with capital flows into EM countries, no countries want to use currency controls, funds chasing growth but currency appreciation is a normal part of the adjustment process.
• By not pegging the Israelis shekel (currency) to the dollar he preserves fiscal flexibility.
• He thinks many hedge funds act in concert. Their attacks on sovereign debt, CDS and other asset classes should be eliminated. He doesn’t mind people, even internet kids making hundreds of millions of dollars personally. Thinks personal financial reward should be tied to real economic growth and job creation.
• In 1980 he sold all of Israel’s gold at $800/oz. Gold hasn’t yet doubled since then, so it was a good sale, he doesn’t own any and it has underperformed his other capital allocation decisions.

The Battle between local and "global" advertising: back story of Google & Groupon

There is has been a challenge since the beginning of the advertising industry - how to enable small, local businesses to advertise to its potential customers in a focused and cost effective way. With traditional advertising media - TV, radio & billboard - the media creation and "real estate" costs combine to a prohibitive expense for local businesses, where potential sales are a fraction of products that sell on a larger scale. Take for example a local restaurant versus a restaurant chain. A local restaurant can only rely on word of mouth and repeat customers for marketing; perhaps some flyers or cheap, local newspaper ads. But TV, radio & billboard is out of the question. The ROI is never feasible.

Not only is cost a key concern on successful local advertising, but business model as well. I remember in my former position, I was with a venture fund that invested in a digital signage company that developed a unique technology that was suitable for the digital billboard market, during the time when large format LED signs were about $1m a piece. One of the main ideas was to enable changing static images - so the billboard owner could sell time slots like TV & radio into the billboard market. It was a difficult implementation, mainly due to business model. And today, local businesses still do not have a cost effective billboard media solution. In theory, digital signage could provide a billboard solution to local businesses, but in practice it has yet to be implemented, largely due to a lack of an acceptable business model of the billboard owners.

Enter the internet. As with a number of industries, the Internet turned advertising on its head. Already during 2005 and 2006, when local internet advertising on the web was strong, many industry experts realized a unique trend - local internet advertising was dramatically more valuable and thus more expensive for the advertiser. A cost per click (CPC) for a local business was (and is) significantly higher than for a Coca Cola ad, for example, on CNN. Of course, a key issue is the number of potential clicks and the Web sites that are relevant for the local advertisers. So CNN is a large publisher with millions of unique visitors. Therefore, statistically, the site will experience a significant amount of clicks - more than a local city newspaper Web site, for example. So Coca Cola will pay a lot more on the advertising in absolute terms, but a lot less on the CPC. Additionally, the Internet can track real performance and ROI, as opposed to TV, radio and billboard.

Web sites like Yelp provide local search for specific city markets. They provide an optimal platform for local businesses to address their core audience – the local consumers. The site adds in social tools, consumer reviews, and walla – a super valuable search and CPC for businesses that have historically had difficulty advertising. The irony is that the local businesses cannot afford high quality advertising...but on the internet they pay much more than the big advertisers per click.

Google actually tried to buy Yelp a year ago for about $500m and failed. Since Google is mainly in the business of broad, global advertising, Yelp is quite complementary. And since they are still a separate company from Google, Yelp, without a doubt takes away business from Google. And the business model is the same. Local businesses buy attractive, performance tracking CPCs.

Most recently, Google tried to get into local business thinking once again via the attempt to acquire Groupon for a whopping $6 BILLION. Google failed on this acquisition as well. Groupon has a very cool business for locals. It offers on Groupon (coupon) per day per local market in which it operates. Deep discounts have always been a successful advertising approach. And this is exactly what Groupon is doing. Groupon is essentially offering local businesses the ability to drive consumers to buy their products; initially for cheap. There are already an estimated 500 Groupon like services on the web across the globe, since it is naturally a local service. Groupon is 4 to 5 times the size of the next competitor, so Google wants the market leader.

It seems that Google was late twice on the local ad front and missed out on both Yelp and Groupon.

The bottom line on the analysis here is that the internet can provide measurable performance driven advertising. Coupled with contextual tools – where the site understands the users’ location and current interests – local advertisers have a very valuable medium. And what Groupon has proven, is that local advertisers need a local, ROI driven audience coupled with a creative business model.

As a final comment / question, I view Yelp as a super valuable asset and the property should essentially be one large, global internet property. Groupon, on the other hand, can easily be a service offered by hundreds of local web properties across the globe. I am not sure if there is an intrinsic value in having one large global Groupon. So if Groupon goes on the M&A hunt, I don’t believe that the company’s value will increase more than any acquisition price. So I think that it may be good for Google that Groupon turned them down. If I was Google, I would go after Yelp once again. What do you think?

Leviev to Float in Poland

I do not normally discuss matters that relate to real estate. I am not going to depart from this custom here, even though the company in question is in the real estate business.

Lev Leviev has several public companies trading on different international stock exchanges, and also owns private companies. This in of itself is innocent enough.

What complicates matters (for me at least) is the fact that there is overlap between these various entities, and with particular reference to his private company interests, which are of course not transparent to the shareholders in the public companies.

Sadly, I am not the naive guy I once was! This leads me to the possibly cynical, but at best skeptical position, whereby I do not have full trust in managers/owners of businesses who have one business for the shareholders and a separate private business for themselves. Unfortunately there can be slips leading to a serious conflict of interest between someone like Leviev and the shareholders in his various public entities.

I add to the above fact that Africa Israel, his main public company, listed in Israel, is still very much in the overhang period following one of the largest debt restructuring stories in Israel's history.

It only partially surprises me that he plans to IPO one of his vehicles on the Polish stock exchange.

I would strongly urge Caveat Emptor (buyer beware) - aligning management, controlling and passive shareholders interests is one of the best ways of avoiding the types of mess that we have seen unfold during the recent financial and real estate meltdown!

Private Equity - Is the sector waking up?

http://blogs.forbes.com/streettalk/2010/01/11/time-to-invest-in-private-equity/

PNMsoft is Cool!

Congrats to our buddies at PNMsoft who have been selected as a "Cool Vendor" by Gartner.

They received this accolade for work that they have been doing assisting BPO's improve their efficiency working with their customers.

In general Gartner commented on the trend that they see of agile and flexible BPM vendors who can create and deliver solutions with tangible gains in a rapid timeframe to their customers in a way the legacy and "heavier" products cannot manage.

It's a Fine Line!

Many have already commented on the decision made by Brian Davis , the British golfer who lost the Verizon Heritage by drawing attention to illegally touching some reeds during his back swing. Apparently this is in contravention of the rules, and having "owned up" lost strokes and as result could not win the event.

How easy would it have been from Mr Davis to have simply ignored the infringement and gone on to challenge on he final green for the tournament. It is indeed a fine line between doing the right thing or not.

We all have in our daily lives, whether it is family and personal or business and professional, occasions when we have the choice to make between the right or moral thing to do and avoiding the choice. Often we persuade ourselves that it is no big deal, just a white lie, or as I have often heard a victim-less crime!

In this age of cynicism and the ends seemingly always justifying the means there ought to be an award from Brian Davis, and not just from within the context of sports (although there are many in sports who could take a lesson.)

Perhaps the most impressive part of the episode is the matter of fact way that Davis dealt with the decision. For him this was the obvious and natural way to behave. He did not make calculations about what benefit he might make in PR or other terms.

I would like to add my voice to those who have shown their admiration and encourage all those that we are in business with (including ourselves) to take this as an example of how to re-build confidence in society and one another!

I need not tell you who will be getting my vote for Sports Personality of the Year in the coming year!

Its the P&L, stupid!

I hope that nobody gets offended by this blog! If they do I apologise in advance!

I picked this tweet up which was written by a very respected VC partner and recommended by another very respected VC partner.

I thought - great, I will get some insight from some people who have been in this business longer than me with great track record. What you will find if you read the article is a very basic look at the elements that make up a company's profit & loss account.

I, of course, accept that this is a very important part of any business. The surprising part about the article was the implied assumption that the readers are not very well versed in the various parts of the P&L.

There has been much debate recently about the VC industry and the its business model. I think that also what needs to be debated is the type of mind-set that VC's have created amongst management of the companies that they back.

At Goldrock, we have recently seen a number of companies that have made the initial sales breakthrough reaching several million $'s in sales. However in too many cases this has been at the expense of too much equity capital that has been invested over the previous years, leaving the company in what I call "cap-table trap"!

If managers are used to going back to their VC "sugar daddy" every year for more equity money then they have little or no incentive to worry about basic things like receivables and payables (for the un-initiated, the money a company is owed or owes its trading partners).

In the long term all of us on the investing side need to pay attention to the capital efficiency of our investing models, whether it is at the sharp end of the VC world or the less dramatic world of growth investing or private equity. If we do not, our LP's will not find the justification for supporting this type of investing.

The debate on the VC/PE model must continues, but must also drive everyone on the gravy train to be honest about the way they are achieving returns and the true risks taken in order to make them.

10 years ago today...

Thanks to Richard Holway who picked up on the fact that today is the 10th anniversary of the UK tech market peak, and that NASDAQ will follow shortly afterwards! Please see his article to see the last ten years of tech stock market performance in perspective - "10 Years Ago Today...."

Fragmenting the Mobile Device App Store Concept

This was a major theme throughout the event. The iPhone app store is viewed as the runaway leader in application downloads and sales. Frankly, I believe it is a definition issue, since more than 70% of paid applications are games. If that is true, than the operators have historically had a decent business prior to the iPhone. But off-deck activities, iPhone kills.

Android expectations

Operators view the Android as a real opportunity for them to get in the game of off-deck app stores. The rapid growth thus far of Android and the clear expectations of further dominance have the operators scrambling to put together an android offering for subscribers to try and get a cut out of the business. Growth is clear, since devices are being launched with android and more than 20 million will be in the market in 2010 alone. Google still has not created commitments with operators, but I believe they will, since it is either that or expecting users to create new billing relationships directly with Google. That will be a major barrier for paid content. But they are trying to create their own silo – like apple, with a focus on cloud computing (PC / mobile crossing) and trying to create a more PC like experience with android (flash, etc.). This may be their approach – and may mimic the PC market – where all Google content and services are free and the revenue is from advertising. Google just acquired Admob from $750m to manage the mobile ad business for them. The mobile ad market is a challenging concept, and they know it. So it seems they are keeping their options open.

WAC

To battle Apple, the world’s largest mobile operators have joined forces to launch an open international applications platform. The so-called ‘Wholesale Applications Community’ (WAC) will include the following operators: America Movil, AT&T, Bharti Airtel, China Unicom, Deutsche Telekom, KT, mobilkom Austria, MTN Group, NTT Docomo, Orange, Orascom Telecom, Telecom Italia, Telefonica, Telenor, TeliaSonera, SingTel, SK Telecom, Sprint, VimpelCom, WIND, Vodafone, China Mobile, SoftBank and Verizon Wireless. The group serves a combined 3 billion mobile customers across the globe. LG, Samsung and Sony Ericsson pledged support. The idea is to allow app developers to only need to develop for one standard environment, and not require development per device support. In addition, the operators want a cut of the app market and strengthen their brand. Not sure if it is going to work. Frankly, most people I spoke with (including people from operators on the above list) basically laughed at it. Operators generally demand consensus on industry decisions. So to assume 24 operators can all agree on anything is a bit of a joke.

Ericsson

Ericsson, which is the world's largest mobile infrastructure supplier, has launched a white label app store as a service to mobile operators. The company claims it is already in discussions with a number of operators regarding them using the new service, known as ‘eStore.’ eStore was targeted for use on any device, not just a select few and to create rev share deals for the operators and for Ericsson. Important to note, they are NOT part of the WAC initiative, so unclear where they will fit it, or if the Ericsson + WAC + iPhone + android + RIM + Windows + OVI + Samsung +++++ will actually help or hinder the market fragmentation and confusion.

Samsung

Samsung is hedging itself all over. 10 millio android devices for 2010, 5 million Bada devices, they will launch Windows devices at the end of the year, they are supporting the WAC initiative, etc. The only real definitive issue that they have said was that they are no longer launching Symbian devices. This basically means to me that they are concerned about device sales and not content sales. They may very well emerge as the premier smartphone brand with devices addressing all types of users in all types of markets. In addition, they are backing (my theory of) the mobile operators’ interest to create a very fragmented market to minimize the iPhone control over the market.

Nokia OVI (sucks)

There big announcement – they launched OVI maps. There biggest download category is personalization themes. As my daughter would say, “that is sooooooooo 2002!” They are a few years behind the industry. OVI will also serve the new MeeGo OS, but OVI is thus far a dismal failure. Nokia is still the largest and best feature phone company in the world, but they are clearly lagging in the smartphone industry, which is the main driver to data services. (I saw many Europeans with either an iPhone or Blackberry (or both!) and a Nokia for talking – 3 devices J).

Shopping mall approach (Telstra and others)

There was murmuring about operators acting like malls, while OS and device companies will provide the stores within the malls. Only Telstra from Australia ans some Far Eastern operators viewed it as a real option. I believe that it is somewhat compelling, as long as the mall will enable the app developers to have one development requirement, and the mall will prepare the content per store with standards (similar to WAC). The truth is WAC may morph into a mall.

The New View on Mobile Device Operating Systems

Historically, the device design was viewed as the most important element for the consumer. Colors, buttons, curves, screen size, flip, sliders, etc. They then focused much effort on identifying the objective consumer interest. First, they focused on creating small devices, then thin devices – which were much more successful (i.e. the MOTO RAZR and others). This has been the story, until less than 2 years ago.

Today, with the dominance of BlackBerry in business and iPhone in consumer markets, the industry has realized that operating systems are as important, if not more important, than device design; and using ODMs or in-house teams from device companies to develop smartphone OSs is no longer an option.

iPhone Fears

iPhone came onto the scene a year and a half ago. They are now the most sold single device in the market (40m+). I noticed 4 interesting things about the iPhone at the event that brought me to the conclusion that there is a major fear in the industry:

Operator complaints – speaking to a couple of operators and hearing some sessions, there were generally 3 reactions to iPhone:

1) Some operators felt that iPhone was literally stealing from their infrastructure and customers to make a lot of money without paying a toll.

2) Some operators felt that with direct or indirect coercion, the operator had no choice but to offer the iPhone to their subscribers.

3) Some operators already view themselves as a network pipe and view the iPhone as a way to drastically increase data services and to just focus on gaining more data traffic.

Developer complaints – I heard a number of application developers complaining about the iPhone walled garden, no flash, VoIP being blocked, etc – but they are all focusing on the iPhone even though they have a choice. Everyone has to play by Apple’s rules.

Apple didn’t show up. My conclusion here was that Apple views themselves as an industry killer. Really a different industry. And GSM is for the operator centric market. Just like they turned the music industry on its head, they are now turning the mobile data services market on its head. Operators receive about 30% cut from data services on their network; with iPhone, they get zero. Google is trying to do the same, so far no success, and most content downloaded for android is free, since there is no consumer billing relationship with Google. And Google announced they are willing to work with the operators, but not yet.

Everyone is trying to copy / create valid iPhone competition – from 3 directions: (1) devices to look like the iPhone, (2) OS to act like the iPhone, (3) app stores to provide content like the iPhone.

Android Craze

There was a lot of talk, and I believe hope, from the mobile carriers that Android will emerge as the savior. The OS can compete with the intuitiveness of the iPhone. It is also open for developers – has flash, VoIP, multiple device deals, etc. And Google has no billing relationship and is hinting that they will do the data services with operators. Statistics are showing that over the next 12+ months, the only viable competition to the iPhone in the app market is Android. It is growing fast and there is an expectation of about 20m+ more Android devices sold in 2010.

Samsung Bada

Samsung announced a new iPhone OS competition – Bada – that will be on their first Bada device – Wave. Based on the amount of billboards, videos and talking – they have high hopes for this operating system. Samsung also already has their own app market and they will merge the two.

MSFT Windows Mobile 7

With much skepticism, all listened in anticipation about Windows Mobile 7. Surprisingly, it generated much interest from device manufacturers and there are at least 8 companies (Samsung, LG, Sony Ericsson, HTC, HP, Dell, Toshiba and Garmin Asus) that will run windows X-mas 2010. I spoke with a guy that saw the demo at GSM and he told me that it was fantastic…but too bad it wasn’t launched in 2007; and they may have missed the market. From others that I was talking with (most app companies), they felt it will be easier to develop for MSFT than it is today and it will go up against RIM more than iPhone and Android. I tend to agree, as a MSFT user. That Windows can be a great business tool, with seamless Outlook and Office use. Operators as well have signed on: AT&T, Orange, T-Mobile, Telefonica, Sprint Nextel, Vodafone, SFR, Verizon Wireless, Telstra and Telecom Italia. Microsoft said it will work particularly closely with AT&T and Orange.

Nokia & Intel’s MeeGo

Nokia and Intel are to merge their respective Linux initiatives to form a new platform designed for high-end mobile. Known as 'MeeGo,' the platform will combine Nokia’s Maemo and Intel’s Moblin. Nokia said that they expect 20% of their devices to rum MeeGo by 2011.

This begs the question…what about Symbian?

Nokia & Symbian was nowhere to be found

Nokia had no booth. No new devices launched. No news from Symbian. Device companies did not announce any new Symbian devices. Dying quickly jumped to dead. I believe that Symbian will be reserved for the feature phone market, but no longer labeled a smartphone OS. Nokia is still the largest device manufacturer in the world with tons of cash, but they do not seem to be making any real smart moves in the smartphone market.

My conclusion from the OS part of the GSM event is that there is INTENTIONAL massive fragmentation expected, with iPhone to be the largest single device seller. But the fragmentation will cause complexity for services and operators that need to deal with all – for example gaming, advertising, etc. This fragmentation will be intentional, potentially modeling the laptop market. Windows is still over 80% of the market, but apple is the largest single seller of laptops worldwide. The mobile operators may be hoping that the iPhone may be the single most selling smartphone device in the market – but be only about 10-20% - therefore leaving 80%+ of the market needing applications, services, billing, and strong operating systems.

Tough times...but let's put things in perspective

The western world is definitely feeling some economic hard times...and it may very well be here for a while. But I wanted to put things into perspective by using some common English sayings and their respective sources, mainly from about a few hundred years ago (got this from an email forward):

1) In the olden days, the floor was dirt. Only the wealthy had something other than dirt. Hence the saying, "Dirt poor."

2) In the olden days, they used to use urine to tan animal skins, so families used to all pee in a pot and then once a day it was taken and sold to the tannery. If you had to do this to survive you were "Piss Poor"

3) But worse than that were the really poor folk who couldn't even afford to buy a pot. They "didn't have a pot to piss in" and were the lowest of the low.

Is this where our society is headed? Perhaps we all have to live within our means, and then we won't get there - where society used to be in the middle ages. I believe that the main issue is that the developed economies have largely "outsourced" production to emerging economies and have kept "spending" in-house - as the source of most of the economic base. We need to bring back production on developed country's shores. How? Not via government taxation, protectionism and other forms of government control (which is much scarier than the recession), but through individual responsibility. We should all live within our means.

Any ideas?

GSM Review: Mobile Carrier Confusion

I recently attended the GSMA Mobile World Congress in Barcelona, Spain. According the Wikipedia, GSMA is the combination of the world's largest exhibition for the mobile industry and a congress featuring prominent Chief Executives representing mobile operators, (handset) vendors and content owners from across the world.

This year’s GSMA event was much larger than the 2009. There was a large turnout and more upbeat and excitement. If I could sum up the conference in one take-away – it was Mobile Carrier Confusion – mainly stemming from the iPhone phenomena. The iPhone put a big stick in the spokes of the industry, and the carriers are now trying to get back on track.

This conclusion is based on a few general observations from the event:

1) Device manufacturers and mobile carriers have both finally realized that mobile device operating systems are as important, if not more important, that device design. Neither is sure how to tackle this issue.

2) After years of apathy around mobile applications, both device manufacturers and mobile carriers are placing major emphasis and resources around application stores. Neither is sure how to tackle this issue.

3) Mobile carriers are not sure how or why to invest in new, multi-billion dollar 4^th generation networks, while more emerging markets are still evaluating 3G infrastructure.

4) Mobile carriers are having trouble formulating a growth story for the next 10 years.

I will post 4 blogs on the above 4 issues.

Trade Wars: The Empire Strikes Back

Returning from NY and SF a few weeks ago, the word "fragile" kept ringing in my ears. I met with some very bright people on those shores of America. When I asked them about the economy, their chief concerns were that this recovery may not last, that the stock market rally was too broad, that employment (despite the trillions) was still stuck, and that the overall economic situation was, well, fragile. But where, I asked myself, were the fault lines? Where could all of the progress of the last 6 months unravel?

Enter Paul Krugman (Darth Vader theme music, please). The accomplished and respected economist (Nobel prize and all) is now giving America the justification it requires to embark on a protectionist crusade. Krugman in his recent New York Time op-ed column says this: "...there’s the claim that protectionism is always a bad thing, in any circumstances. If that’s what you believe, however, you learned Econ 101 from the wrong people — because when unemployment is high and the government can’t restore full employment, the usual rules don’t apply."

Krugman is righly upset with the Chinese for their unwillingness to allow an appreciation of the Yuan against the Dollar (this policy makes Chinese goods artificially cheap, and thus hampering US production and the recovery of the US economy). He thinks that protectionism is the appropriate weapon for America to fight back . With Chinese domestic demand weak relative to their production capacity, a real serious trade war, hints Krugman, would be a huge blow to the Chinese economy. In a vieled threat Krugman says "I’d urge China’s government to reconsider its stubbornness". Whether it is protectionism he is advocating, or only the threat of protectionism, it hardly matters. The genie is out of the bottle.

Terrific. So now we have the world's most widely read economist giving the Obama Administration a green light to raise protectionist barriers. Not that the US was waiting for Krugman's blessing, barriers have been slowly appearing, but it always helps to have the guru on your side.

In its attempt to fix the unintended consequences of the Internet bubble, the Federal Reserve helped create the credit bubble. Now to fix the unintended consequences of the credit bubble the US Government is flirting with trade protectionism. And the question is, what will be the unintended consequences this time round?

Open markets have been good for standards of living in the West and in the East. We eat better, sleep warmer, live longer. For much of this we have to thank the free movement of goods and services between markets. Protectionism takes us back in the opposite direction and should be viewed with extreme skepticism and worry.

Exit Krugman, enter Eric Schmidt. Google's announcement last week of a potential exit from China must be seen in this context. I don't fault Google's reasoning. But I do worry about its symbolic value.

Google is not just any company. It is an American icon. It is symbolic of American progress, brilliance and freedom. Like America, Google dominates the world. Plenty of companies do business in China, but Google's business is the very lifeblood of the economy - information.

The withdrawal of Google from China is akin to the withdrawal of an ambassador. It signals a severing of ties between the US and China, and the next step in the trade wars. May the Force be with us.