"Blackberry Juice"

The news Research In Motion Ltd is in a legal dispute with NTP Inc over patent violations that could see hand-held Blackberries shut down in the coming weeks should send shivers through those who have hailed these little devices as the saviour of productivity. On the other hand, anybody who has had the misfortune to own one of these instruments of torture knows that they are much more like electronic tagging than an innocent aid.

But things like the Blackberry are great symbols of how the West will earn a living going forward. This Canadian firm which has a market capitalization of almost US$13bn 1 (US$1bn when listed on NYSE in 1999) bears many of the characteristics of the new globalised model company. As Charles Gave and his associates at GaveKal Research call it the "produce nowhere, sell everywhere" company. Just as an experiment, I took mine to pieces and found out that the body was assembled in Canada and the battery was manufactured in China from (curiously) Japanese materials.

Shamelessly I am going to draw upon a method used by GaveKal to look at what this kind of product does to the view of the North American or any kind of economy. If you look on the internet, my Blackberry 7230 retails at US$150. The battery costs a staggering US$40 on its own. Thinking about the margins in other economies you would expect that 10% would be a good margin for a Chinese manufacturer. The body, made in Canada would have a higher margin (say 20%). The software, that powers the whole thing made in the US and does not add to trade deficit, has a mighty margin attached to it (say 90% for this exercise). If you use these assumptions (see table below) you can work out exactly how much RIM makes on one of these contraptions - something like US$130 on a sale price of US$150. Now you know why the value of the company is US$13bn when it was floated at $1bn.

This is how an accountant would look at things. But to an economist, things look very different. In trade terms around US$15 or 10% of the value looks like imports and shows up as a trade or current account deficit. On the flip side, it looks like exports to other countries. Using data prepared by the CIA 2 , it's easy to break the world down into regions and see how economists view the trade situation (see first chart). Since Canada is involved in this we have lumped it in with "North America" and you can see what a very different view of things one gets. The Far East enjoys a dominant surplus in the world (this includes the Chinese and Japanese who made the battery) while North America sits in a lowly position running a whopping $800bn deficit 3 . This is important because deficits like this are used as a reason why the US dollar is going to collapse any second now and why the Chinese have to revalue their currency upwards just as immediately 4 .

Clearly, this isn't the case. The purely econometric view of this global transaction misses the overall benefits to the new model company. For instance, RIM could be running a margin of 87% which causes its stock to rise and adds to the wealth of the nation (not captured by the trade numbers). It also supplies employment for US workers who administer the global enterprise and also write the software. This panders to the skills of the West while outsourcing the difficult volatile parts of a business enterprise (manufacturing and inventory management) to someone else.

This differing view of the same transaction should lay aside some of the tensions that many investors feel about a sudden currency dislocation in the near future. This, however, does not negate the idea that there is a long-term trend in place whereby the US dollar loses out to other developing capitalist systems like South America and the Far East. Our own attempts at modelling currencies shows how the theoretical valuations, like the case of the yen, are tending to push the value of the US dollar downwards over time. Notice how in the second chart the "theoretical" line is drifting lower using our modified Purchasing Power Parity model. The difference between theory and practice can be put down to frustrating political or market intervention, but it is difficult to imagine that even the Japanese authorities will be able to stand in the way of history forever.

Clearly there is a much more gentle realignment of currencies occurring here than many would like if only to relieve their own psychological needs for closure or formal resolution of the situation. We have reduced our dollar exposure in the expectation that it will give up some of its false gains made last year when the Euro lost so much credibility during the referenda on the European Constitution but this shouldn't be confused with the idea that we expect the dollar to implode. On the flip side the US dollar will only gain its standing in the world again when the emerging economies become as bad as us and run out of juice but that won't be for many years yet.