Saturday, May 31, 2008

New era of expensive oil

Things are officially nuts - diesel prices have surpassed already crazy gasoline prices here. When my parents bought their first diesel-powered SUV four or five years ago, they were delighted that they were going have to pay only a third of what they had been paying to fill up the tank.

Diesel prices, however, have been rising steadily, at a faster pace than other petroleum products including gasoline, as global demand increased. At the same time, the Korean government has been raising the domestic tax on diesel with a goal to make it almost - but not exactly - as expensive as gasoline. The idea is to protect the environment by curbing diesel consumption. Combine these two factors, the result is people being forced to pay more for diesel than for gasoline at the pump, although in theory, diesel is supposed to be cheaper than gasoline because of the quality differential.

Refiners must be having a field day - who would've thought they could sell diesel at higher prices than gasoline? Particulalry, Korean refiners are so-called "export-oriented" refiners, with products like diesel making up the bulk of their exports. So, as long as overseas folks like China buy, they will make money.

Meanwhile, SUV drivers like my parents are getting screwed, but more broadly, truckers and bus drivers will be hit hard, and eventually, the impact will be felt by consumers. As such, truckers' unions are threatening to walk out if the government doesn't do something about this. And the government is busy trying to come up with a solution, looking into giving subsidies to certain businesses or even lowering the tax.

But with oil prices trending up, we all know none of these measures will solve the problems fundamentally, especially given that using fiscal policies to control oil prices can only be detrimental to economies. So everyone's hands are tied. Perhaps it's about time to really give a serious thought to going green.

Friday, May 23, 2008

Being a president in Korea

Being a president and being popular at the same time seem like a tough, if not impossible, job in Korea. The approval rating for the current president here has nosedived in just a few months, from something like 90% to below 30%. Behind this is the whole beef controversy, for which he appologized through a televised conference, looking more serious than ever.

But certainly, he isn't the only president who the public has turned their back on so quickly. Actually, I can't think of a single president who was particulalry popular while in office.

The relationship between presidents and the public here is pretty strange. Roh Moo-hyun, the previous president, was probably one of the least popular presidents during his term, with an approval rating around 50% when he left office.

As the New York Times reported, he's a rock star now, with hundreds of people waiting outside his house in the countryside to see him upfront every day. Humbleness seems to be the reason why people are going crazy over him now, as he lives among ordinary people, unlike other former presidents who live in heavily guarded mansions. But when he was in office, not a day went by that he didn't get attacked by the press for whatever he tried to do, and as such, people blamed literally everything on him.

During Roh's administration, there was this nostalgia about Park Jung-hee, who was a brutal milatary dictator in the 1970s. People feared Park like the devil back in the days, but 30 years later, people are saying they miss his leadership which led the country out of proverty, as Korea's economic growth seems to be slowing down.

My theory is that the Koreans, as impatient as they are known to be, want quick answers to their problems from their leaders, and if there's no visible improvement in their lives, they get disappointed just as easily. And then they look back, as the old Korean saying goes, "old officials are good officials."

But often people forget they are the ones who picked those people as their leaders. Especially in case of current president, people had every reason not to vote him, given he was mired in shady scandals, but people still gave him a landslide victory. Hope people learned something this time around.

Monday, May 19, 2008

Dejavu: Singapore penetration

When I first went to Singapore two years ago, I was pretty surprised to see Korean stuff everywhere. I had heard about the "Korean wave," but I had no idea it was that big in Asia.

Now, since I came back to Seoul, I've been seeing ads for Singapore on quite a few occasions. It seems like there's some big Singapore tour promotion going on here, and on top of that, some rare Singaporean brands have made it here.

Come to think of it, I think I've actually read in the Straits Times that Breadtalk was trying to branch out to Korea, and indeed, I've seen a couple of Breadtalk shops here, with pretty big crowds curiously picking up bread in there. It was a dejavu of a bunch of Singaporeans standing in circle outside DVD shops, aimlessly watching Korean dramas.

I think they put up a big banner saying, "Singapore's Breadtalk finally arrived in Seoul," or something. As lame as it sounds, it was intriguing enough to almost drag my friend in - that is, before I stopped her. We also have Kaya toast, advertised as the Southeast Asia's finest product, and I can't wait to see a hawker center open in the middle of Seoul one day.

All of this must be part of globalization at work, and I should give it credit for dragging the Lion city out of its little box.

Friday, May 09, 2008

Beef fiasco

There's been huge protest against the Korean government's decision to resume importing American beef. Thousands of people have been holding candlelight vigils across the country, asking the government to withdraw the agreement with the U.S., which was reached just in time when the Korean president was on his first trip to the U.S.

People may be overly concerned about American beef and mad cow disease, but their fears are ligitimate, since their health is at stake. But public health is probably the last thing politicians care about at the moment. The pro-business, pro-American president must have wanted to get the beef issue out of his way so he can move on and talk with the U.S. about ratifying the FTA as quickly as possible.

Indeed, the FTA was all he talked about during his trip to the U.S. And the news of the beef agreement, which was signed in Seoul, was privately broken to the president first when he was in the U.S., even before the negotiations offcially wrapped up and before any of the Korean media got hold of it. A reporter who followed the president at the time in Washington said the president and the Korean delegates drew a cheer from the American crowd while relaying the news, and put an embargo on the news.

The ruling party is blindly supporing the president, although they were the ones who opposed the resumption of American beef imports when the previous government was under pressure from the U.S. Back then, they said bringing in American beef could seriously jeopardize public health, but it has become clear now that all they wanted was just to bash the then leftist president and administration, because that's the way Korean politics works - all that matters is which party you belong to, no matter what ideas and values your party represents, and flipping sides isn't that big of a deal.

The current opposition parties are just doing that. Are they criticizing the government because they worry about people? Some may do, but I doubt that's the sole motive. They are attacking the government because they are on the opposition side, and they've been taking advantage of the deteorating public sentiment against the government amid mounting fears of mad cow disease.

Talking about people's fears of American beef, there's another side to this issue. Such fears are valid to some extent, but the problem is that the fears in large part were created by groundless and non-scientific hearsay about the danger of American beef that the Korean media spread. And the result is near paranoia about eating American beef.

This is a classic case of how statistics and scientific studies can fool you. One example: a broadcast station aired a documentary, saying how dangerous it is to eat American beef, especially for Koreans. It cited some statistics showing all of the British people who got mad cow disease had a certain type of genes, which 90-something percent of Koreans have. Therefore, Koreans are more likely to get mad cow disease than any other races. In response, the government claims, backed up by some doctors and health experts, that just because those Brits and Koreans have the genes, it doesn't mean Koreans will get mad cow disease more easily.

At this point, the truth doesn't matter to them any more. What matters to them is spotting flaws in each other's argument, and win the debate, using all those stats and obscure studies. And while they are at it, the public is out there on the streets, begging to be part of the game.

Tuesday, May 06, 2008

How high is too high?

We are living in a scary world. When I started to cover the crude oil market at Dow Jones about two years ago, if I remember correctly, Nymex crude futures were in the neighborhood of $60 a barrel. Goldman Sachs had been predicting crude prices would rise above $100 a barrel sooner or later, but a majority of other market watchers felt such a spark won't materialize easily; if it ever did, the world economy would be in serious trouble.

Fast forward to now, Nymex crude futures rose well past the $100 mark, breaking above $120 a barrel. In other words, crude prices almost doubled over the past two years. The global economy has been holding up relatively well - certainly better than people had expected, barring the impact of the subprime crisis.

But it is getting pretty scary. High oil prices are pushing up prices for literally everything, with rises in the prices of commodities, especially food, being the most visible. And poor countries are being hit the hardest by run-away inflation, which is seriously threatening their livelihood. In more developed countries too, increases in wages don't keep up with the surging prices, so unless you are a big commodities investor like Jim Rogers, this is becoming a hard time for everyone.

The scariest part is there seems to be nothing that can stem inflation driven by rising commodities prices.

People can blame high oil prices on speculators, but the hard fact is it is becoming harder to find new oil fields, whereas existing fields are aging, and production from the fields is declining as a result. Although it's arguable if the current supply and demand situation justifies the current prices, and how much premium is built in the prices by speculators, as long as traders see the imbalance in supply and demand, prices can only rise. Similarly, growth in food production is being outstripped by demand, and without a significant, revolutionary increase in production, which would take years, the trend won't be reversed.

People are already talking about $200-a-barrel oil, without being laughed at. If we get there, then what? Will people start talking about oil selling at $250 a barrel? Unlike stocks, it's hard to know what the appropriate values of commodities are, so for these monsters, only sky seems to be the limit. And when they finally land, perhaps we'll all have come crashing down.