McKinsey recently released a report called The Emerging Equity Gap. You can find the report here.

Some of their key findings include the following:

• Investors in developed economies hold nearly 80 percent of the world’s financial assets — or $157 trillion — but these pools of wealth are growing slowly relative to those in emerging markets.
• ƒThe financial assets of investors in emerging economies will rise to as much as 36 percent of the global total by 2020, from about 21 percent today. But unlike in developed countries, the financial assets of private investors in these nations currently are concentrated in bank deposits, with little in equities.
• ƒSeveral factors are reducing investor appetite for equities in developed countries: aging populations; shifts to defined-contribution retirement plans; growth of alternative investments such as private equity; regulatory changes for financial institutions; and a possible retreat from stocks in reaction to low returns and high volatility.
• ƒBased on these trends, McKinsey projects the share of global financial assets in publicly traded equities may fall from 28 percent today to 22 percent by 2020. That will create a growing “equity gap” over the next decade between the amount of equities that investors will desire and what companies will need to fund growth. This gap will amount to approximately $12.3 trillion in the 18 countries McKinsey modelled, and will appear almost entirely in emerging markets, although Europe will also face a gap.

It looks like I may not be the only investor thinking about this strategy.

Odd interview questions. The oddest one that I have received in my career: “How are water and air most alike?”

“How many people are using Facebook in San Francisco at 2:30 p.m. on a Friday?” — Asked at Google, Vendor Relations Manager candidate

“If Germans were the tallest people in the world, how would you prove it?” — Asked at Hewlett-Packard, Product Marketing Manager candidate

“Given 20 ‘destructible’ light bulbs (which break at a certain height), and a building with 100 floors, how do you determine the height that the light bulbs break?” — Asked at Qualcomm, Engineering candidate

“How would you cure world hunger?” — Asked at Amazon.com, Software Developer candidate

“You’re in a row boat, which is in a large tank filled with water. You have an anchor on board, which you throw overboard (the chain is long enough so the anchor rests completely on the bottom of the tank). Does the water level in the tank rise or fall?” — Asked at Tesla Motors, Mechanical Engineer candidate

“Please spell ‘diverticulitis’.” — Asked at EMSI Engineering, Account Manager candidate

“You have a bouquet of flowers. All but two are roses, all but two are daisies, and all but two are tulips. How many flowers do you have?” — Asked at Epic Systems, Corporation Project Manager/Implementation Consultant candidate

“How do you feel about those jokers at Congress?” — Asked at Consolidated Electrical, Management Trainee candidate

“If you were a Microsoft Office program, which one would you be?” — Asked at Summit Racing Equipment, Ecommerce candidate

Via.

I think things are going to get a bit ugly. I’m not sure how ugly for Canada but the global economy does not look good. And the situation in the United States is really quite grim.

Some data points for our friends in the United States (courtesy of Zero Hedge):

• The U.S. debt is 100% of GDP, or approximately $15 trillion
• The U.S. federal government is running a $1.3 trillion annual deficit
• Unfunded liabilities for Social Security, Medicare and prescription drug are a staggering $116 trillion and growing
• 47 million Americans are on food stamps
• The broad measure of unemployment is 25 million Americans
• New jobless claims have run around 400,000 each week for the entire year
• Household debt is $13.9 trillion
• Almost half of the population in America received some type of government benefit

Nouriel Roubini, also known as Doctor Doom, had this to say about the global economy:

In my view, there’s a significant probability, more than 50 per cent, that over the next 12 months there’s going to be another recession in most advanced economies. Whether you call it a double dip recession, a continuation of the first recession or a second recession doesn’t matter, it’s semantic.

The world is not in a happy place.

The real point of the Occupy movement… is that the powerful and wealthy ruling class in Canada – perhaps 10 or 15 per cent, not 1 per cent, of the population – have been appropriating the resources belonging to the rest of us for more than 30 years.

Via.

I asked my wife the question: who are the one percent in Canada? She said anyone making over $400,000 per year.

I can see why she responded that way. Armine Yalnizyan, writing for the Canadian Centre for Policy Alternatives, made the following observation about the rich in Canada:

This generation of rich Canadians is staking claim to a larger share of economic growth than any generation that has preceded it in recorded history. An examination of income trends over the past 90 years reveals that incomes are as concentrated in the hands of the richest 1% today as they were in the Roaring Twenties.

And even then, Canada’s elite didn’t experience as rapid a growth in their income share as has occurred in the past 20 years. Canada’s richest 1% — the 246,000 privileged few whose average income is $405,000 — took almost a third (32%) of all growth in incomes in the fastest growing decade in this generation, 1997 to 2007.

The full pdf report can be downloaded here.

246,000 privileged few with an average income of $405,000 is a bit misleading. It turns out that to be included in that number the income level drops down to about $170,000. And, if you want to include the top ten percent of the population — those folks who have been appropriating the resources “belonging to the rest of us for more than 30 years” — you enter that group with an income level that drops down to about $65,000.

Hardly the view that most of us would have of the super rich. I would consider incomes between $65,000 and $200,000 as good incomes but not super rich incomes.

That said, the very top of the income scale in Canada kicks in at about $620,000 per year in income. That amounts to 0.01 percent or about 2,500 people. And that is a very high income for most of us. However, there does not seem to be a definition for high income. Statistics Canada made the following observation:

There is no agreed-upon definition of high income, either in terms of absolute dollar thresholds or as a fixed percentage of the population. While defining poverty exhibits similar difficulties, numerous studies have discussed concepts such as ‘deprivation’ and ‘straitened circumstances,’ providing some general support for selecting a threshold below which one is considered to be in low income. No corresponding literature exists for defining high income.

Their 2007 report on High Income Canadians (download the pdf file here) is interesting. And Andrew Coyne tries to make a few points about whether the Occupy movement is really just about income envy:

It’s still not clear why so many should be so upset that so few are so rich—other than the obvious reason: envy. It’s worth noting that to be in the top 10 per cent of earners in Canada you only have to make about $65,000 or so. That would include most of the media covering these events, and a good number of the protesters, or their parents. The sight of the near-rich casting covetous eyes at the rich—all in the name of denouncing “greed”—is, you’ll forgive me, a bit rich.

Via.

I’m not sure what the Occupy movement is really about but I was surprised to find that the one percent in Canada, and the top ten percent, are not as rich as I would have thought — except of course for the very top income earners. Perhaps a better indicator of being rich is not based on income but on net worth.

Michael Lewis has a new book called Boomerang: Travels in the New Third World. Highly recommended. Difficult to read because he outlines in a unique, offbeat fashion, the systematic pattern of financial exploitation that has been hammering the globe since the collapse of leverage in the 2008 timeframe. Not difficult to understand, mind you. Lewis presents the material almost as satire. The context of the current financial mess is made very clear.

Greece has been in the news of late and until I read his book, I did not have a clear understanding as to the breadth of the economic challenge that faces this country. Here is an excerpt from the book:

… the International Monetary Fund and the European Central Bank had between them agreed to lend Greece — a nation of about eleven million people, or two million fewer than Los Angeles — up to $145 billion…

That was the good news. The long-term picture was far bleaker. In addition to its roughly $400 billion (and growing) of outstanding government debt, the Greek number crunchers had just figured out that their government owed another $800 billion or more in pensions. Add it all up and you get about $1.2 trillion, or more than a quarter-million dollars for every working Greek. Against $1.2 trillion in debts, a $145 billion bailout was clearly more of a gesture than a solution. And those were just the official numbers; the truth is surely worse. “Our people went in and couldn’t believe what they found,” a senior IMF official told me…

… as it turned out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a pinata stuffed with fantastic sums and give as many citizens as possible a whack at it.

After reading this book, my sense is that the global economic mess is going to get a lot worse.

A friend passed me the following:

Are you hungry and foolish?

He built a computer even I can understand.
He changed the way most of us listen to music.
He even made it okay for me to be a font freak. (Thanks.)

Beyond that, four words scream “Steve Jobs” to me.

FOCUS.
He removed all but the necessary. Jobs’ greatest trait as a leader may have been his art of saying no. The first thing he did upon returning to a floundering Apple in 1997 was hack and slash the company’s bloated product line. He wanted to build a small number of great products, not a bunch of good ones. His focus enabled Apple to launch iMac, iPod, iTunes, iPhone and iPad in succession. Five consecutive grand-slams. Saying no to some of our pet projects is painful… but it ultimately focuses us on greatness.

Are you saying no enough?

INSTINCT.
He trusted his gut. Jobs was a market researcher’s nightmare. He repeatedly bet the farm by dreaming up products he knew we’d want, without using focus groups. Consumers don’t always know what they want, he reasoned, especially if it’s something they’ve never seen or heard or touched. Focus groups didn’t tell Apple to build an iPhone. Jobs was a visionary who adopted a build-it-and-they-will-come mantra.

Are you spending too much time analyzing… and not enough implementing?

ELEGANCE.
He obsessed over clean design. If you ask most people what makes them buy Apple products, it’s probably a variation of, “They just look and work so cool.” His products make complex things simple and fun. I still remember the seamless install of my MacBook and saying, “That’s IT?” Good, simple, elegant design that constantly surprises and delights us is a Jobs hallmark.

Are you making it simple? Is your process elegant? Shouldn’t it be?

INSPIRATION.
He moved others to do the impossible. If we believe even a slice of what’s written, Jobs was tough to work for. Best selling author Guy Kawasaki, a former Mac marketer and legend in his own right, said last week he lived in fear that Jobs would call his work crap… in public. So Kawasaki always took it up a level. Jobs pushed people to achievements even they doubted for themselves. Bottom line: he gave a damn. And he inspired the same in everyone around him. Isn’t that the primary role of a leader?

Are you inspiring your team to be better than they think they are?

“I expect to see the Maple Leafs win a Stanley Cup before RIM builds a number one phone,” said Bing Gordon of Kleiner Perkins, the Silicon Valley venture firm that helped launch Google.

Charter Equity analyst Ed Snyder, who has covered RIM since its public listing in 1997, two years before the BlackBerry was launched…

“They’re stuck in the past. They know what worked and keep playing that card and it’s not working any more, and they don’t seem to have any ideas.”

Must be a wonderful time to work at Microsoft and RIM these days.

Via.

Remarkable. Microsoft can make money in the mobile market without needing the bother of a mobile device. Why worry about Windows Phone 7?

Microsoft gets $5 for every HTC phone running Android, according to Citi analyst Walter Pritchard, who released a big report on Microsoft this morning.

Microsoft is getting that money thanks to a patent settlement with HTC over intellectual property infringement.

Microsoft is suing other Android phone makers, and it’s looking for $7.50 to $12.50 per device, says Pritchard.
HTC Pays Microsoft $5 Per Android Phone, Says Citi.

A rough estimate of the number of HTC Android devices shipped is 30 million. If HTC paid $5 per unit to Microsoft, that adds up to $150 million Android revenues for Microsoft.

Microsoft has admitted selling 2 million Windows Phone licenses (though not devices.) Estimating that the license fee is $15/WP phone, that makes Windows Phone revenues to date $30 million.

So Microsoft has received five times more income from Android than from Windows Phone.

Looking forward and assuming that Microsoft can receive this type of settlement from about half of the Android license takers, then the prospects of a windfall from Android dwarf the expected income from Windows Phone.

Google’s Android seems the best thing that could have happened to Microsoft’s mobile efforts, ever.

Via.