A few sentences about gold toward the end of a column by Robert Zoellick in today’s FT are drawing much attention. I doubt very much if the World Bank President has in mind a return to the gold standard, though goldbugs and critics alike are talking as if he does.
Even if one placed overwhelming weight on the objective of price stability — enough weight to contemplate a rigid straightjacket for monetary policy — gold would not be a suitable anchor. The economy would be hostage to the vagaries of the world gold market, as it was in the 19th century: suffering inflation during periods of gold discoveries and deflation during periods of gold drought. This is well-known. I am confident Zoellick understands it. (He and I were in the same macroeconomics seminar at Swarthmore College in the 1970s.)
I think he is making another point. The world is moving away from a monetary system in which the dollar is the overwhelmingly dominant international reserve asset. The dollar’s share of international reserves has been declining ever since Richard Nixon unilaterally ended the Bretton Woods system in 1971. The dollar’s unique role is not an eternal god-given constant of the universe, any more than it was for pound sterling. The US currency of course replaced the pound in the first half of the 20th century, with a lag of 25 years or more after the US surpassed the UK economically.
Will some asset replace the dollar, then? No, not a single asset. But we are probably moving to a system where there will be as many as a half dozen international reserve assets. First, there is the euro. Despite the serious troubles facing it this year, the euro has been a competitor for the dollar since it came into being 11 years ago. Both the yen and the Swiss franc have to some extent played safe haven roles during the last three years of global financial turmoil. The pound is not out completely. Some day the renminbi will be added to the roster of major international currencies, when China’s financial markets are sufficiently developed and open. Even the SDR (special drawing right) came back from the dead in 2009.
And, yes, gold too has re-joined the world monetary system. Gold was seen as an anachronism as recently as a couple of years ago. The world’s central banks had been gradually selling off their stocks. But all that changed in 2009. The People’s Bank of China, the Reserve Bank of India and other central banks in Asia have bought gold. Understandably, they want to diversify their reserves. It appears that central banks have stopped selling gold even among advanced countries and that aggregate gold reserves have risen over the last year. This is a multiple reserve asset system.
Tuesday, November 9, 2010
Momentum Moving to Asia Pacific
Janus is targeting the Asia Pacific market for investments as well as new fund customers.
In an interview with Asian Investor, chief Richard Weil said expanding in the region is at the top of his agenda. He sees the launch of products catering to Asian investors as key, acknowledging that Janus does not currently have especially compelling regional offshore offerings.
Currently, 8% of Janus's $160.8 billion in assets is based outside the U.S., but the company's goal is to raise the level to 20% to 25% within five years, Weil said in the interview. Part of the strategy entails broadening the distribution network and adding investment resources, starting with the addition of one or two portfolio managers and three or four analysts somewhere in Asia most likely next year, he also said.
Janus has offices in Tokyo, Hong Kong and Melbourne, where 35 employees attend to client servicing, compliance and sales, but nearly all of its portfolio managers and analysts are based in the U.S.
The product path will progress from global to emerging-markets funds, then regional equity and fixed-income offerings, Weil tells Asian Investor.
Janus is also positioning itself for more Asia Pacific investments by its U.S. customers, Weil said. He predicted that U.S. investors will shift assets overseas in greater numbers as they come to terms with the U.S.'s diminished global power. The realization will foster a deeper understanding on investors' part of regional differences and individual country performance, he also said.
Consistent with that view, Janus last week rolled out three global funds: the Emerging Markets Equity Portfolio, Global High-Yield Portfolio and Global Investment Grade Bond Portfolio.
In an interview with Asian Investor, chief Richard Weil said expanding in the region is at the top of his agenda. He sees the launch of products catering to Asian investors as key, acknowledging that Janus does not currently have especially compelling regional offshore offerings.
Currently, 8% of Janus's $160.8 billion in assets is based outside the U.S., but the company's goal is to raise the level to 20% to 25% within five years, Weil said in the interview. Part of the strategy entails broadening the distribution network and adding investment resources, starting with the addition of one or two portfolio managers and three or four analysts somewhere in Asia most likely next year, he also said.
Janus has offices in Tokyo, Hong Kong and Melbourne, where 35 employees attend to client servicing, compliance and sales, but nearly all of its portfolio managers and analysts are based in the U.S.
The product path will progress from global to emerging-markets funds, then regional equity and fixed-income offerings, Weil tells Asian Investor.
Janus is also positioning itself for more Asia Pacific investments by its U.S. customers, Weil said. He predicted that U.S. investors will shift assets overseas in greater numbers as they come to terms with the U.S.'s diminished global power. The realization will foster a deeper understanding on investors' part of regional differences and individual country performance, he also said.
Consistent with that view, Janus last week rolled out three global funds: the Emerging Markets Equity Portfolio, Global High-Yield Portfolio and Global Investment Grade Bond Portfolio.
Monday, November 8, 2010
Quote.com vs. cn.Quote.com
Just noticed today that quote.com has a China site now: cn.quote.com. It lists Shanghai SE, Shenzhen SE, A shares, B shares, Government Bond, as well as Hongkong.
This is my first time seeing a sleek US site listing Asian ticker, they did make modificiation though, the color is red when it goes down, not so in China, they are up in Red and Down in Green. I guess color would flip as well when it is moved to the other side of the earth.
This is my first time seeing a sleek US site listing Asian ticker, they did make modificiation though, the color is red when it goes down, not so in China, they are up in Red and Down in Green. I guess color would flip as well when it is moved to the other side of the earth.
The Focus Hocus-Pocus
Democrats, declared Evan Bayh in an Op-Ed article on Wednesday in The Times, “overreached by focusing on health care rather than job creation during a severe recession.” Many others have been saying the same thing: the notion that the Obama administration erred by not focusing on the economy is hardening into conventional wisdom.
But I have no idea what, if anything, people mean when they say that. The whole focus on “focus” is, as I see it, an act of intellectual cowardice — a way to criticize President Obama’s record without explaining what you would have done differently.
After all, are people who say that Mr. Obama should have focused on the economy saying that he should have pursued a bigger stimulus package? Are they saying that he should have taken a tougher line with the banks? If not, what are they saying? That he should have walked around with furrowed brow muttering, “I’m focused, I’m focused”?
Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.
The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.
Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.
But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.
Worse, there was no Plan B. By late 2009, it was already obvious that the worriers had been right, that the program was much too small. Mr. Obama could have gone to the nation and said, “My predecessor left the economy in even worse shape than we realized, and we need further action.” But he didn’t. Instead, he and his officials continued to claim that their original plan was just right, damaging their credibility even further as the economy continued to fall short.
Meanwhile, the administration’s bank-friendly policies and rhetoric — dictated by fear of hurting financial confidence — ended up fueling populist anger, to the benefit of even more bank-friendly Republicans. Mr. Obama added to his problems by effectively conceding the argument over the role of government in a depressed economy.
I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?
So where, in this story, does “focus” come in? Lack of nerve? Yes. Lack of courage in one’s own convictions? Definitely. Lack of focus? No.
And why would failing to tackle health care have produced a better outcome? The focus people never explain.
Of course, there’s a subtext to the whole line that health reform was a mistake: namely, that Democrats should stop acting like Democrats and go back to being Republicans-lite. Parse what people like Mr. Bayh are saying, and it amounts to demanding that Mr. Obama spend the next two years cringing and admitting that conservatives were right.
There is an alternative: Mr. Obama can take a stand.
For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.
Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.
But I have no idea what, if anything, people mean when they say that. The whole focus on “focus” is, as I see it, an act of intellectual cowardice — a way to criticize President Obama’s record without explaining what you would have done differently.
After all, are people who say that Mr. Obama should have focused on the economy saying that he should have pursued a bigger stimulus package? Are they saying that he should have taken a tougher line with the banks? If not, what are they saying? That he should have walked around with furrowed brow muttering, “I’m focused, I’m focused”?
Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.
The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.
Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.
But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.
Worse, there was no Plan B. By late 2009, it was already obvious that the worriers had been right, that the program was much too small. Mr. Obama could have gone to the nation and said, “My predecessor left the economy in even worse shape than we realized, and we need further action.” But he didn’t. Instead, he and his officials continued to claim that their original plan was just right, damaging their credibility even further as the economy continued to fall short.
Meanwhile, the administration’s bank-friendly policies and rhetoric — dictated by fear of hurting financial confidence — ended up fueling populist anger, to the benefit of even more bank-friendly Republicans. Mr. Obama added to his problems by effectively conceding the argument over the role of government in a depressed economy.
I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?
So where, in this story, does “focus” come in? Lack of nerve? Yes. Lack of courage in one’s own convictions? Definitely. Lack of focus? No.
And why would failing to tackle health care have produced a better outcome? The focus people never explain.
Of course, there’s a subtext to the whole line that health reform was a mistake: namely, that Democrats should stop acting like Democrats and go back to being Republicans-lite. Parse what people like Mr. Bayh are saying, and it amounts to demanding that Mr. Obama spend the next two years cringing and admitting that conservatives were right.
There is an alternative: Mr. Obama can take a stand.
For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.
Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.
Sunday, November 7, 2010
Mr. Bloomberg: "I never met in my life such an arrogant man (Obama)
HONG KONG — Criticizing China was a popular campaign tactic for Democrats and Republican candidates alike in many campaigns this year, but Mayor Michael R. Bloomberg of New York was quick to leap to China’s defense on Saturday.
“It is very dangerous for us as a society — I’m speaking of America — to focus on blaming others, because what you do then is you don’t focus on your own practices,” Mr. Bloomberg said at a news conference here.
He spoke after assuming the chairmanship of a coalition of 40 city governments around the world concerned about climate change.
Mr. Bloomberg was openly skeptical of the Obama administration’s decision on Oct. 15 to open a broad investigation into whether China violated World Trade Organization rules by subsidizing its exports of solar panels and other clean-energy products to the United States and by restricting imports.
“Let me get this straight,” Mr. Bloomberg said, “there is a country on the other side of the world that is taking their taxpayers’ dollars and trying to sell, subsidize things so we can buy them cheaper and have better products, and we’re going to criticize that?”
He said the United States also subsidized “an enormous number of industries.”
The World Trade Organization has restrictions on many kinds of subsidies. But its toughest bans are on export subsidies, in which a government tries to use its money to help its country’s companies buy market share in another country.
White House officials have acknowledged that the United States has subsidized the research, development and deployment of clean-energy technologies. But they have denied that the United States was subsidizing their export.
Zhang Guobao, the director of China’s National Energy Administration, strongly criticized the American investigation of Chinese practices at a news conference on Oct. 17 and emphasized that the United States had clean-energy subsidies; he did not draw a distinction between domestic subsidies and export subsidies.
Mr. Bloomberg also did not make that distinction. But he said some trade disputes could have merit.
“It isn’t that I think there isn’t some justification to some of these trade disputes,” he said, “but I think it is so dangerous for America” to lose its focus on bigger issues. Mr. Bloomberg added that he believed Chinese people who had ideas for great new businesses should be allowed to immigrate to the United States.
Mr. Bloomberg praised China for showing a much greater interest lately in environmental protection, even as he criticized the country for having allowed severe water pollution and other problems.
The mayor disavowed again on Saturday any interest in pursuing the presidency. He expressed sympathy for the challenges President Obama was facing, without providing specifics, and talked repeatedly about how attractive it was to be mayor.
In New York, the mayor’s office offered a terse comment on Saturday over a remark that Rupert Murdoch said Mr. Bloomberg had made about Mr. Obama after playing golf with the president over the summer.
In an interview with The Australian Financial Review, Mr. Murdoch said that after the outing on Martha’s Vineyard, Mr. Bloomberg “came back and said, ‘I never met in my life such an arrogant man.’ ”
Jessica Scaperotti, a spokeswoman for Mr. Bloomberg, said in an e-mail that “the mayor remembers the conversation differently. As he has said many times, he believes all Americans should be rooting for the president to succeed.”
The White House press office did not respond to requests for comment.
“It is very dangerous for us as a society — I’m speaking of America — to focus on blaming others, because what you do then is you don’t focus on your own practices,” Mr. Bloomberg said at a news conference here.
He spoke after assuming the chairmanship of a coalition of 40 city governments around the world concerned about climate change.
Mr. Bloomberg was openly skeptical of the Obama administration’s decision on Oct. 15 to open a broad investigation into whether China violated World Trade Organization rules by subsidizing its exports of solar panels and other clean-energy products to the United States and by restricting imports.
“Let me get this straight,” Mr. Bloomberg said, “there is a country on the other side of the world that is taking their taxpayers’ dollars and trying to sell, subsidize things so we can buy them cheaper and have better products, and we’re going to criticize that?”
He said the United States also subsidized “an enormous number of industries.”
The World Trade Organization has restrictions on many kinds of subsidies. But its toughest bans are on export subsidies, in which a government tries to use its money to help its country’s companies buy market share in another country.
White House officials have acknowledged that the United States has subsidized the research, development and deployment of clean-energy technologies. But they have denied that the United States was subsidizing their export.
Zhang Guobao, the director of China’s National Energy Administration, strongly criticized the American investigation of Chinese practices at a news conference on Oct. 17 and emphasized that the United States had clean-energy subsidies; he did not draw a distinction between domestic subsidies and export subsidies.
Mr. Bloomberg also did not make that distinction. But he said some trade disputes could have merit.
“It isn’t that I think there isn’t some justification to some of these trade disputes,” he said, “but I think it is so dangerous for America” to lose its focus on bigger issues. Mr. Bloomberg added that he believed Chinese people who had ideas for great new businesses should be allowed to immigrate to the United States.
Mr. Bloomberg praised China for showing a much greater interest lately in environmental protection, even as he criticized the country for having allowed severe water pollution and other problems.
The mayor disavowed again on Saturday any interest in pursuing the presidency. He expressed sympathy for the challenges President Obama was facing, without providing specifics, and talked repeatedly about how attractive it was to be mayor.
In New York, the mayor’s office offered a terse comment on Saturday over a remark that Rupert Murdoch said Mr. Bloomberg had made about Mr. Obama after playing golf with the president over the summer.
In an interview with The Australian Financial Review, Mr. Murdoch said that after the outing on Martha’s Vineyard, Mr. Bloomberg “came back and said, ‘I never met in my life such an arrogant man.’ ”
Jessica Scaperotti, a spokeswoman for Mr. Bloomberg, said in an e-mail that “the mayor remembers the conversation differently. As he has said many times, he believes all Americans should be rooting for the president to succeed.”
The White House press office did not respond to requests for comment.
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Saturday, November 6, 2010
Chart of JPY looks set-up for BOJ intervention
here would be implication for many other contracts as well (for example bonds and metals), if such were to occur early next week.
Without expressing any opinion on this, I'd point out that there is a Japanese stock ETF which hedges out the Yen/$ exposure. So if you believe that the BOJ will take steps that pushes up the Nikkei AND the Yen will decline against the Dollar too, then buying some DXJ is a good vehicle for expressing this view.
(There are lots of other ways to express this dual view, but this is the simplest way for ETF traders.)
YCS [pro shares ultra short yen] would be a more aggressive way to play the imagined scenario….
This doesn't have much to do with hedging the exposure or this particular ETF, but I have not seen a discussion of the following anywhere so I'll pose this as a question. If you look at the composition of Nikkei-225 you see that a large percentage of it is in these groups:
Foods, Textiles and Apparel, Pulp & Paper, Chemicals, Oil & Coal Products, Rubber Products, Glass & Ceramics, Steel Products, Nonferrous metals, Machinery, Electric Machinery, Shipbuilding, Automotive, Precision Instruments, and Other Manufacturing.
It seems like my favorite Central Banker has successfully unleashed a worldwide raw materials inflation cycle, measured in whatever currency you chose. Given that Japan imports so much of its raw materials and so do many of the countries where it now chooses to do some of its manufacturing, how can what's about to happen, even if the final demand somehow rises, be good for Japan?
Without expressing any opinion on this, I'd point out that there is a Japanese stock ETF which hedges out the Yen/$ exposure. So if you believe that the BOJ will take steps that pushes up the Nikkei AND the Yen will decline against the Dollar too, then buying some DXJ is a good vehicle for expressing this view.
(There are lots of other ways to express this dual view, but this is the simplest way for ETF traders.)
YCS [pro shares ultra short yen] would be a more aggressive way to play the imagined scenario….
This doesn't have much to do with hedging the exposure or this particular ETF, but I have not seen a discussion of the following anywhere so I'll pose this as a question. If you look at the composition of Nikkei-225 you see that a large percentage of it is in these groups:
Foods, Textiles and Apparel, Pulp & Paper, Chemicals, Oil & Coal Products, Rubber Products, Glass & Ceramics, Steel Products, Nonferrous metals, Machinery, Electric Machinery, Shipbuilding, Automotive, Precision Instruments, and Other Manufacturing.
It seems like my favorite Central Banker has successfully unleashed a worldwide raw materials inflation cycle, measured in whatever currency you chose. Given that Japan imports so much of its raw materials and so do many of the countries where it now chooses to do some of its manufacturing, how can what's about to happen, even if the final demand somehow rises, be good for Japan?
Friday, November 5, 2010
Harvard Squash King: Victor Niederhoffer
The first time I read about Victor Niederhoffer was from a featured article in New Yorker, I wasn't particularly interested in his trading strategy, nor was impressed by his trading record. What really made my jaw dropping was his track record of Squash record, after holding number 1 seed for all the years he studied in Harvard, he kept winning in almost every professional clubs he belonged too. In the end, no club wanted to accept him!
Though I never study his trading theory, I do visit his site every day, not to read investment related posts, but everything sports associated. He is very into Ping Pong lately and often compares Squash with Ping Pong. another sport I am very fond of.
To Squash, To PingPong, To Victor!
Though I never study his trading theory, I do visit his site every day, not to read investment related posts, but everything sports associated. He is very into Ping Pong lately and often compares Squash with Ping Pong. another sport I am very fond of.
To Squash, To PingPong, To Victor!
Thursday, November 4, 2010
G20 Meeting in Korea
Korea may have an opportunity to exercise historic leadership, when it chairs the G-20 meeting in Seoul, November 11-12. This will be the first time that a non-G-7 country has hosted the G-20 since the larger, more inclusive, group supplanted the smaller rich-country group in April of last year as the premier steering committee for the world economy. With large emerging market and developing countries playing such expanded economic roles, the G-7 had lost legitimacy. It was high time to make the membership more representative. But there is also a danger that the G-20 will now prove too unwieldy, in which case decision-making might then revert to the smaller group.
When countries like China and India used to demand a larger voice in world governance based on their large populations, they did not get very far. Substantive power in multilateral governance is allocated according to the Golden Rule: “He who has the gold rules.” But after a few decades of miraculous economic growth rates they now have the economic heft. China is now larger economically than Japan or Germany. Brazil is also one of the seven largest economies.
Beyond GDP, we have recently seen a historic role reversal, in which debtor-creditor patterns have changed. Many developing countries, breaking historic patterns, took advantage of the global boom of 2003-2007 to achieve high national saving rates, particularly in the form of strong government budgets, while the advanced countries did not. As a result, the debt levels of the top 20 rich countries (debt/GDP ratios around 80%) are now twice those of the top 20 emerging markets. And it is rising rapidly. A number of emerging market countries now have higher credit ratings than a number of so-called advanced countries. A stronger fiscal position is one of the reasons that countries like China could afford to undertake large and sustained fiscal stimulus in response to the 2008-09 global recession. The United States and United Kingdom, by contrast, had wasted the preceding expansion running budget deficits, and hence by 2010 had come to feel heavily constrained by their debts.
It is understandable if Korea views its hosting of the G-20 as another opportunity for marking its arrival on the world stage (as when it hosted the Olympics) or for consolidating its status as an industrialized economy (as when it joined the OECD). But it should make more of its opportunity than this. Korea should seize the chance to exercise substantive leadership. Otherwise, the risk is that its period in the chair could appear like a replay of the chaotic Czech presidency of the EU in the first half of 2009, which confirmed the feelings of some in the larger European countries that it was a mistake to let smaller countries take their turns behind the wheel.
Korea can serve as a bridge between the G-7 and the developing countries. But chairing a successful meeting will be a challenge, with respect to both meeting management and substantive issues.
With regard to managing the meeting, the challenge comes from the size of the group. There is always a tradeoff between legitimacy and workability. The G-7 was small enough to be workable but too small to claim legitimacy. The United Nations is big enough to claim legitimacy but too big to be workable. The latest evidence of this was the Conference of Parties of the UN Framework Convention on Climate Change in Copenhagen last December. The UNFCCC proved a totally ineffectual vehicle, in part because small countries repeatedly blocked progress. President Obama was able to make more progress by spending a few minutes in a room with a few big emitting countries than the delegates had achieved in two weeks.
The G-20 has enough legitimacy for its purpose — which is more limited than the purposes of formal institutions such as the UN, IMF, and WTO. It accounts for 85% of the world’s GDP, for example. But it is too big to be workable as a steering group. A principle of multilateral talk-shops is that conversation is not possible with more than 10 in the room. With 20 delegations, each reads prepared statements; there is no give and take and the communiqué is a watered down least-common-denominator press release. Not only does the G-20 have more than 10 delegations; it actually has more than 20.
The G-20 needs a smaller informal steering group within the steering group, a G-6 or G-9 within the G-20. It could meet in the evening before the main G-20 meeting and discuss how to organize the discussion in the larger group.
Who would be in the G-6 or G-9? It would be unwise to be too specific at this point. Nevertheless, the US, Japan, and Europe (represented perhaps by the EU Commission), must be there on the rich-country side; China, India, and Brazil must be there on the developing-country side. Of course the pressure to expand is always irresistible. Europe could be represented by both the U.K. and euroland. In Seoul, Korea has to be there as the host. Who would be the 9th country in the G-9? It should be the country of which the person reading this blog post is a citizen.
What about the substance of the meetings? The group will discuss whatever the bigger countries consider it most useful to discuss at the time. Five possible topics include:
•At long last, giving more seats on the IMF executive board to big emerging market countries, in proportion to their rising economic clout,offset by consolidation of some of Europe’s seats.
•More financial regulatory reform, such as coordination of any small taxes or penalties that members want to apply to risk-taking banks.
•Global current account imbalances. Perhaps there will be a statement agreeing that large current account deficits or surpluses tend to lead to problem (absent some good economic justification), that exchange rates and budget deficits both bear some responsibility for current large imbalances, and that the burden of adjustment should be born by neither one alone, but rather by both.
•Macroeconomic exit strategies. I personally would favor an articulation of the proposition that concrete steps toward long-term fiscal consolidation in each country need not require premature withdrawal of current fiscal stimulus. An example would be to raise the future retirement age or take other steps today to reform public pensions, even while simultaneously enacting some short-term stimulus in the US and UK.
•Moving toward a new agreement on climate change to take the place of the Kyoto Protocol after 2012. Korea is in a good position to lead, as essentially the first post-Kyoto country to accept emission targets.
Don’t judge the outcome of the meeting by what appears in the media. Press reviews usually pronounce such summits a let-down. But occasionally such meetings are important, in ways that are often not clear until later.
Consider the London G-20 meeting of April 2009. It was not obvious at the time that it had been a success in terms of substantive policies. Observers even compared it to the infamous failed London Economic Summit of 1933, which was a way of saying that the world had not learned the lessons of the Great Depression. But the 2009 meeting appears far better in hindsight. Looking back on 2009, fiscal stimulus turned out to be more widespread in 2009 than one might have guessed. Similarly, global monetary policy was easy, avoiding another big mistake of the 1930s. The G-20 unexpectedly agreed to triple IMF resources and bring the SDR back from the dead. Even in the area of trade policy, despite fears of protectionism, the outcome was not bad at all by the standards of past recessions, let alone in comparison with the Smoot-Hawley tariff of 1930. Overall, policy-makers’ immediate response to the global recession in 2009 did not repeat the mistakes of the early 1930s.
Currently, however, the advanced countries are in danger of repeating the mistake that President Franklin Roosevelt made in 1937, when he cut spending prematurely and sent the US economy back into recession. Perhaps the G-20 will be a venue in which the big emerging market countries can remind the U.S. and the U.K. of the lesson they once knew but have now forgotten — what it means to run a countercyclical fiscal policy.
When countries like China and India used to demand a larger voice in world governance based on their large populations, they did not get very far. Substantive power in multilateral governance is allocated according to the Golden Rule: “He who has the gold rules.” But after a few decades of miraculous economic growth rates they now have the economic heft. China is now larger economically than Japan or Germany. Brazil is also one of the seven largest economies.
Beyond GDP, we have recently seen a historic role reversal, in which debtor-creditor patterns have changed. Many developing countries, breaking historic patterns, took advantage of the global boom of 2003-2007 to achieve high national saving rates, particularly in the form of strong government budgets, while the advanced countries did not. As a result, the debt levels of the top 20 rich countries (debt/GDP ratios around 80%) are now twice those of the top 20 emerging markets. And it is rising rapidly. A number of emerging market countries now have higher credit ratings than a number of so-called advanced countries. A stronger fiscal position is one of the reasons that countries like China could afford to undertake large and sustained fiscal stimulus in response to the 2008-09 global recession. The United States and United Kingdom, by contrast, had wasted the preceding expansion running budget deficits, and hence by 2010 had come to feel heavily constrained by their debts.
It is understandable if Korea views its hosting of the G-20 as another opportunity for marking its arrival on the world stage (as when it hosted the Olympics) or for consolidating its status as an industrialized economy (as when it joined the OECD). But it should make more of its opportunity than this. Korea should seize the chance to exercise substantive leadership. Otherwise, the risk is that its period in the chair could appear like a replay of the chaotic Czech presidency of the EU in the first half of 2009, which confirmed the feelings of some in the larger European countries that it was a mistake to let smaller countries take their turns behind the wheel.
Korea can serve as a bridge between the G-7 and the developing countries. But chairing a successful meeting will be a challenge, with respect to both meeting management and substantive issues.
With regard to managing the meeting, the challenge comes from the size of the group. There is always a tradeoff between legitimacy and workability. The G-7 was small enough to be workable but too small to claim legitimacy. The United Nations is big enough to claim legitimacy but too big to be workable. The latest evidence of this was the Conference of Parties of the UN Framework Convention on Climate Change in Copenhagen last December. The UNFCCC proved a totally ineffectual vehicle, in part because small countries repeatedly blocked progress. President Obama was able to make more progress by spending a few minutes in a room with a few big emitting countries than the delegates had achieved in two weeks.
The G-20 has enough legitimacy for its purpose — which is more limited than the purposes of formal institutions such as the UN, IMF, and WTO. It accounts for 85% of the world’s GDP, for example. But it is too big to be workable as a steering group. A principle of multilateral talk-shops is that conversation is not possible with more than 10 in the room. With 20 delegations, each reads prepared statements; there is no give and take and the communiqué is a watered down least-common-denominator press release. Not only does the G-20 have more than 10 delegations; it actually has more than 20.
The G-20 needs a smaller informal steering group within the steering group, a G-6 or G-9 within the G-20. It could meet in the evening before the main G-20 meeting and discuss how to organize the discussion in the larger group.
Who would be in the G-6 or G-9? It would be unwise to be too specific at this point. Nevertheless, the US, Japan, and Europe (represented perhaps by the EU Commission), must be there on the rich-country side; China, India, and Brazil must be there on the developing-country side. Of course the pressure to expand is always irresistible. Europe could be represented by both the U.K. and euroland. In Seoul, Korea has to be there as the host. Who would be the 9th country in the G-9? It should be the country of which the person reading this blog post is a citizen.
What about the substance of the meetings? The group will discuss whatever the bigger countries consider it most useful to discuss at the time. Five possible topics include:
•At long last, giving more seats on the IMF executive board to big emerging market countries, in proportion to their rising economic clout,offset by consolidation of some of Europe’s seats.
•More financial regulatory reform, such as coordination of any small taxes or penalties that members want to apply to risk-taking banks.
•Global current account imbalances. Perhaps there will be a statement agreeing that large current account deficits or surpluses tend to lead to problem (absent some good economic justification), that exchange rates and budget deficits both bear some responsibility for current large imbalances, and that the burden of adjustment should be born by neither one alone, but rather by both.
•Macroeconomic exit strategies. I personally would favor an articulation of the proposition that concrete steps toward long-term fiscal consolidation in each country need not require premature withdrawal of current fiscal stimulus. An example would be to raise the future retirement age or take other steps today to reform public pensions, even while simultaneously enacting some short-term stimulus in the US and UK.
•Moving toward a new agreement on climate change to take the place of the Kyoto Protocol after 2012. Korea is in a good position to lead, as essentially the first post-Kyoto country to accept emission targets.
Don’t judge the outcome of the meeting by what appears in the media. Press reviews usually pronounce such summits a let-down. But occasionally such meetings are important, in ways that are often not clear until later.
Consider the London G-20 meeting of April 2009. It was not obvious at the time that it had been a success in terms of substantive policies. Observers even compared it to the infamous failed London Economic Summit of 1933, which was a way of saying that the world had not learned the lessons of the Great Depression. But the 2009 meeting appears far better in hindsight. Looking back on 2009, fiscal stimulus turned out to be more widespread in 2009 than one might have guessed. Similarly, global monetary policy was easy, avoiding another big mistake of the 1930s. The G-20 unexpectedly agreed to triple IMF resources and bring the SDR back from the dead. Even in the area of trade policy, despite fears of protectionism, the outcome was not bad at all by the standards of past recessions, let alone in comparison with the Smoot-Hawley tariff of 1930. Overall, policy-makers’ immediate response to the global recession in 2009 did not repeat the mistakes of the early 1930s.
Currently, however, the advanced countries are in danger of repeating the mistake that President Franklin Roosevelt made in 1937, when he cut spending prematurely and sent the US economy back into recession. Perhaps the G-20 will be a venue in which the big emerging market countries can remind the U.S. and the U.K. of the lesson they once knew but have now forgotten — what it means to run a countercyclical fiscal policy.
Here Are The Three Reasons QE2 Will Backfire
Dr. El-Erian, CEO and co-CIO of PIMCO states several reasons why QEII will backfire.
1. The Fed is going it alone, without meaningful structural reforms
2. Emerging economies burdened by capital inflows in the wake of QEII will react with currency wars, protectionism, and capital controls
3. Resultant commodity price increases will increase input costs and reduce earnings of American companies
The position of El-Erian is interesting given that PIMCO founder, managing director and co-CIO endorsed QEII as discussed in Bill Gross' Arrogant Endorsement of Fed's QE Policy he calls History's Most "Brazen Ponzi Scheme".
Unintended Consequences of QEII
Mohamed El-Erian addresses the unintended consequences of Fed policy actions and the reasons Quantitative Easing will fail in QE2 blunderbuss likely to backfire.
The Fed faces three problems, with its solo role being the first. Having warned in late August in Jackson Hole that “central bankers alone cannot solve the world’s economic problems”, Ben Bernanke, the Fed’s chairman, is now leading an institution that is virtually on its own among US policymakers in meaningfully trying to counter the sluggishness of the US economy and the stubbornly high unemployment.
The rest of the world does not need this extra liquidity, and this is where the second problem emerges. Several emerging economies, such as Brazil and China, are already close to overheating; and the eurozone and Japan can ill afford further appreciation in their currencies.
Despite polite rhetoric to the contrary in the lead up to the Group of 20 leading economies summit in Korea this month, other countries are likely to counter what they view as an unnecessarily disruptive surge in capital flows caused by inappropriate and short-sighted American policy. The result will be renewed currency tensions and a higher risk of capital controls and trade protectionism.
The third issue relates to the gradual erosion of America’s central role in the global economy – including as the provider of both the world’s reserve currency and its deepest and most predictable financial markets. No other country or multilateral institution can displace the US, but a combination of alternatives can serve to erode its influence over time. No wonder commodity prices surged higher and the dollar weakened markedly in anticipation of QE2, pointing to increased input costs for American companies and unwelcome pressures on their earnings.
Pavlov's Dogs and the "No Choice" Argument Yet Again
Although I agree with the three major points above, I certainly do not concur with El-Erian's opening gambit "Given the high market expectations, the US Federal Reserve had no choice but to announce a second tranche of quantitative easing".
Pray tell who set those expectations if not the Fed? Moreover, given the market reacted like Pavlov's Dogs to the announcement, the Fed could have and should have toned down market expectations.
Finally given that the Fed produced a bubble in junk bonds and sent commodity prices soaring the Fed had every reason to disappoint the market today.
For more on junk bonds please see ...
Thanks to Fed, Bubble Builds in Junk Bonds; We Know How Bubbles End
Mad Dash Into Junk Sets October Record
Intended vs. Unintended Consequences
Add a junk bond bubble to the list of consequences (unintended or otherwise).
Bernanke is clearly misguided enough and arrogant enough to purposely blow a junk bond bubble as an "intended consequence", even though the housing bubble bust proves without a doubt the asininity of such policies.
Thus, it's hard to say if Bernanke wants a junk bond bubble or is merely willing to live with one.
Then again, Bernanke is dense enough to not have any clues about what is happening. He did not see the housing bubble, the recession, the huge rise in unemployment, and any number of other things that happened. In fact, he even denied there was a housing bubble.
In the academic wonderland in which Bernanke lives, it is perfectly possible he is oblivious to the bubbles he is creating.
However, looking at things from every angle, given that Bernanke Admits Targeting Stock Prices, I am leaning towards the first option: Bernanke is misguided enough and arrogant enough to purposely blow more asset bubbles as an "intended consequence", hoping he can deal with them later.
Missing the Obvious
I touched on the one obvious reason QEII will fail in QEII Announced, Fed Set to Buy $600 Billion in Bonds, Reinvest $250 Billion More; Fed Micromanaged Economy to Oblivion; No Miracles Coming
Doubts? What Doubts?
There is little doubt, at least in this corner, that the plan cannot possibly work. Corporate borrowing costs are the lowest in history and that hasn't spurred hiring. Will another quarter of a point lower matter? Will QEII even lower rates that much?
Simple explanations as to why QEII will fail are best: "Money’s Already Quite Cheap"
With mortgage interest rates at all time lows, is this supposed to help housing? Why?
It is sad but true economic thinking these days that the "Fed had to do Something". Why does it make sense to do something, just for the sake of doing, when it should be crystal clear that doing just adds to problems down the road.
Fed Micromanaged Economy to Oblivion
The Fed has clearly micromanaged this economy to oblivion. Greenspan's experiment short-circuited the 2001 recession but the expense was the biggest housing bubble in the history of the world, not just in the US, but globally.
A global recession soon followed.
Now on misguided calls to "do something" the Fed is blowing a bubble in commodities that cannot possibly help margin strapped small businesses.
An excerpt from $30 Billion Offer No One Wants - Small Businesses Hit by Deflation will show why. ....
No One Has To Do Anything
It is disappointing to see El-Erian perpetuate the myth the Fed had to do something when one of the biggest reasons we are in this mess is a activist Fed under both Greenspan and Bernanke felt the need to do something about LTCM, Y2K, the Dot-Com bubble, housing, motherhood, and apple pie.
At least El-Erian is not defending what Gross calls a "Ponzi Scheme" to the same foolish extent that Bill Gross did. More importantly, El-Erian makes it clear exactly what some of the consequences are, while the Gross article sounds like "jumping the shark".
Structural Reforms
El-Erian said "Without meaningful structural reforms, part of the Fed’s liquidity injection will leak right out of the US and result in yet another surge of capital flows to other countries."
I agree, but I rather doubt we are talking the same language. This country needs to ...
Scrap Davis-Bacon
End public union collective bargaining
End the public union stranglehold on the cities and states
Fix the pension problem
Even the playing field between big and small businesses on corporate income taxes
Get the hell out of Afghanistan
Reduce military spending
Rein in entitlements
Stop being the world's policeman
Balance the budget
Return to constitutional money
Fed Fights Battle that Cannot be Won, Should Not be Fought
Given that Congress is unlikely to do many, if indeed any of those things, the Fed is fighting a battle that cannot be won and should not be fought.
We are in this mess because the Fed micro-mismanaged the economy at every critical juncture while attempting to smooth over various fiscal insanities, counter bad Congressional policies, as well as deal with the repercussions of its own monetary insanities, on a delayed chasing-its-tail basis, in a global economy that waits for no one.
Is it any wonder the Fed failed in dual mandate of price stability and maximum growth?
For more on the silliness of the Dual Mandate as well as a rebuttal to the notion "Don't Fight the Fed" please see Krugman and the Inevitable "I Told You So" - Tim Duy "Bad Things Happen When You Fight the Fed"; Final End of Bretton Woods 2?
With that key idea in mind, there are two more structural reforms glaringly lacking in the above list: Abolish the Fed and End Fractional Reserve Banking.
1. The Fed is going it alone, without meaningful structural reforms
2. Emerging economies burdened by capital inflows in the wake of QEII will react with currency wars, protectionism, and capital controls
3. Resultant commodity price increases will increase input costs and reduce earnings of American companies
The position of El-Erian is interesting given that PIMCO founder, managing director and co-CIO endorsed QEII as discussed in Bill Gross' Arrogant Endorsement of Fed's QE Policy he calls History's Most "Brazen Ponzi Scheme".
Unintended Consequences of QEII
Mohamed El-Erian addresses the unintended consequences of Fed policy actions and the reasons Quantitative Easing will fail in QE2 blunderbuss likely to backfire.
The Fed faces three problems, with its solo role being the first. Having warned in late August in Jackson Hole that “central bankers alone cannot solve the world’s economic problems”, Ben Bernanke, the Fed’s chairman, is now leading an institution that is virtually on its own among US policymakers in meaningfully trying to counter the sluggishness of the US economy and the stubbornly high unemployment.
The rest of the world does not need this extra liquidity, and this is where the second problem emerges. Several emerging economies, such as Brazil and China, are already close to overheating; and the eurozone and Japan can ill afford further appreciation in their currencies.
Despite polite rhetoric to the contrary in the lead up to the Group of 20 leading economies summit in Korea this month, other countries are likely to counter what they view as an unnecessarily disruptive surge in capital flows caused by inappropriate and short-sighted American policy. The result will be renewed currency tensions and a higher risk of capital controls and trade protectionism.
The third issue relates to the gradual erosion of America’s central role in the global economy – including as the provider of both the world’s reserve currency and its deepest and most predictable financial markets. No other country or multilateral institution can displace the US, but a combination of alternatives can serve to erode its influence over time. No wonder commodity prices surged higher and the dollar weakened markedly in anticipation of QE2, pointing to increased input costs for American companies and unwelcome pressures on their earnings.
Pavlov's Dogs and the "No Choice" Argument Yet Again
Although I agree with the three major points above, I certainly do not concur with El-Erian's opening gambit "Given the high market expectations, the US Federal Reserve had no choice but to announce a second tranche of quantitative easing".
Pray tell who set those expectations if not the Fed? Moreover, given the market reacted like Pavlov's Dogs to the announcement, the Fed could have and should have toned down market expectations.
Finally given that the Fed produced a bubble in junk bonds and sent commodity prices soaring the Fed had every reason to disappoint the market today.
For more on junk bonds please see ...
Thanks to Fed, Bubble Builds in Junk Bonds; We Know How Bubbles End
Mad Dash Into Junk Sets October Record
Intended vs. Unintended Consequences
Add a junk bond bubble to the list of consequences (unintended or otherwise).
Bernanke is clearly misguided enough and arrogant enough to purposely blow a junk bond bubble as an "intended consequence", even though the housing bubble bust proves without a doubt the asininity of such policies.
Thus, it's hard to say if Bernanke wants a junk bond bubble or is merely willing to live with one.
Then again, Bernanke is dense enough to not have any clues about what is happening. He did not see the housing bubble, the recession, the huge rise in unemployment, and any number of other things that happened. In fact, he even denied there was a housing bubble.
In the academic wonderland in which Bernanke lives, it is perfectly possible he is oblivious to the bubbles he is creating.
However, looking at things from every angle, given that Bernanke Admits Targeting Stock Prices, I am leaning towards the first option: Bernanke is misguided enough and arrogant enough to purposely blow more asset bubbles as an "intended consequence", hoping he can deal with them later.
Missing the Obvious
I touched on the one obvious reason QEII will fail in QEII Announced, Fed Set to Buy $600 Billion in Bonds, Reinvest $250 Billion More; Fed Micromanaged Economy to Oblivion; No Miracles Coming
Doubts? What Doubts?
There is little doubt, at least in this corner, that the plan cannot possibly work. Corporate borrowing costs are the lowest in history and that hasn't spurred hiring. Will another quarter of a point lower matter? Will QEII even lower rates that much?
Simple explanations as to why QEII will fail are best: "Money’s Already Quite Cheap"
With mortgage interest rates at all time lows, is this supposed to help housing? Why?
It is sad but true economic thinking these days that the "Fed had to do Something". Why does it make sense to do something, just for the sake of doing, when it should be crystal clear that doing just adds to problems down the road.
Fed Micromanaged Economy to Oblivion
The Fed has clearly micromanaged this economy to oblivion. Greenspan's experiment short-circuited the 2001 recession but the expense was the biggest housing bubble in the history of the world, not just in the US, but globally.
A global recession soon followed.
Now on misguided calls to "do something" the Fed is blowing a bubble in commodities that cannot possibly help margin strapped small businesses.
An excerpt from $30 Billion Offer No One Wants - Small Businesses Hit by Deflation will show why. ....
No One Has To Do Anything
It is disappointing to see El-Erian perpetuate the myth the Fed had to do something when one of the biggest reasons we are in this mess is a activist Fed under both Greenspan and Bernanke felt the need to do something about LTCM, Y2K, the Dot-Com bubble, housing, motherhood, and apple pie.
At least El-Erian is not defending what Gross calls a "Ponzi Scheme" to the same foolish extent that Bill Gross did. More importantly, El-Erian makes it clear exactly what some of the consequences are, while the Gross article sounds like "jumping the shark".
Structural Reforms
El-Erian said "Without meaningful structural reforms, part of the Fed’s liquidity injection will leak right out of the US and result in yet another surge of capital flows to other countries."
I agree, but I rather doubt we are talking the same language. This country needs to ...
Scrap Davis-Bacon
End public union collective bargaining
End the public union stranglehold on the cities and states
Fix the pension problem
Even the playing field between big and small businesses on corporate income taxes
Get the hell out of Afghanistan
Reduce military spending
Rein in entitlements
Stop being the world's policeman
Balance the budget
Return to constitutional money
Fed Fights Battle that Cannot be Won, Should Not be Fought
Given that Congress is unlikely to do many, if indeed any of those things, the Fed is fighting a battle that cannot be won and should not be fought.
We are in this mess because the Fed micro-mismanaged the economy at every critical juncture while attempting to smooth over various fiscal insanities, counter bad Congressional policies, as well as deal with the repercussions of its own monetary insanities, on a delayed chasing-its-tail basis, in a global economy that waits for no one.
Is it any wonder the Fed failed in dual mandate of price stability and maximum growth?
For more on the silliness of the Dual Mandate as well as a rebuttal to the notion "Don't Fight the Fed" please see Krugman and the Inevitable "I Told You So" - Tim Duy "Bad Things Happen When You Fight the Fed"; Final End of Bretton Woods 2?
With that key idea in mind, there are two more structural reforms glaringly lacking in the above list: Abolish the Fed and End Fractional Reserve Banking.
Tuesday, November 2, 2010
The China Miracle Continues
By Byron Wien of BlackStone
This was my third trip to China this year and I was impressed to see the country succeeded in bringing its growth rate below 10% for the third quarter, coming in at 9.6% down from 10.3% in the second. This was important because the policy makers there fear growth in excess of 10% could result in serious inflation pressures. The level of inflation in the quarter was 3.5%, which is believed to be a reasonable and containable rate. The government has slowed the rate of monetary expansion from the stimulative levels of last year. At that time the authorities were worried that the economic recessions in Europe and the United States would have a profound impact on Chinese exports and growth would decline to levels limiting the increase in employment.
Last year’s stimulative policies were effective and growth continued to be strong, primarily as a result of internal domestic demand. The much-feared real estate bubble, which looms as a threat to China’s stability in the minds of many Western observers, is considered to be a manageable problem by most analysts within China. They acknowledge that there are a number of high-end condominiums that are unsold, but the majority of China’s housing stock is more modestly priced and the demand for it by the increasingly urbanized population is robust. Since many Chinese investors are not comfortable owning stocks and prefer something more tangible, real estate is a popular storehouse for wealth. As a result, ownership of multiple apartments is common. This results in a high cost of owning an apartment, but a more reasonable cost of renting. A friend of mine rents a 1600 square foot apartment with a $2 million market value for $2000 a month. One percent rates of return are common. A few months ago there was a story floating around that there were 64 million vacant apartments in China. Support for this statement comes from the fact that there was no electricity being consumed in the units. Local analysts, including Stephen Green, Standard Chartered Bank’s local expert on real estate, wonder where the assertions came from since few Chinese apartments have separate meters and most renters pay for electricity on an allocated basis.
At the end of October the government issued its twelfth five-year plan and there were few surprises. Previous plans have emphasized investment in infrastructure and the development of export-oriented industries. The latest plan has few quantitative objectives but clearly focuses on an expansion of the consumer’s role in continuing Chinese growth. This is viewed as a kind of “economic rebalancing.” Other phases of importance in the plan are “regional growth,” “industrial upgrading,” which I read as productivity enhancement, and “energy efficiency.” The plan also includes objectives such as “new strategic industries,” “income distribution,” “social housing,” and “land market and property tax reform” (there are no real estate taxes in China now) According to Tao Wang, the remarkably insightful economist at UBS, the structural changes in the new five-year plan will benefit technology and consumer products and services rather than traditional manufacturing. The emphasis on industrial upgrading should increase the demand for capital equipment from companies throughout the world. While the previous five-year plan (2006 – 2010) resulted in annual growth of 11.4%, even though the developed world was in recession for part of that period, government investment played a dominant role. However, the objective of reducing energy consumption per unit of gross domestic product growth made little progress.
Whether the new plan will reach its objectives is uncertain at this point, but it is clear that China continues to move forward at an impressive pace. It is now the second most important economy in the world at 9% of the world’s gross domestic product and if it maintains its present growth rate, its economy could be larger than that of the United States in twenty years. China’s per capita income is only about $4,000 versus $40,000 in America, but the country is more comparable on a purchasing power parity basis.
The problems are significant; air pollution is serious in the major cities, as anyone who has been there has experienced, and nobody knows what the long-term health implications of this will be. The filtering of information by the state limits intellectual freedom. Examples are China’s conflict with Google and its strong control of the distribution of Western films, only ten of which are allowed into the country each year. The Chinese authorities acknowledge that the human rights and intellectual freedom issues are controversial, but officials there are focused on growth and creating jobs for the hundreds of millions of citizens with current low living standards. They view dissent as a diversion which slows their forward progress. While social policies are important, there is no talk of taxes and fiscal deficits in China, a sharp contrast with the United States. The one-child policy obviously has long-term implications, as does the lack of a healthcare and retirement safety net. The prevalence of petty corruption is an embarrassment. Nevertheless the economy moves ahead relentlessly and the optimism of the people is palpable.
I attended the Shanghai Expo, which is a kind of World’s Fair. It began in May and ran until the end of October. Seventy million visitors have attended and more than a million have been on the grounds in a single day. Without a special pass you can wait up to eight hours to get into a pavilion where you will spend less than an hour. I saw the presentations of three different countries and they were revealing. The videos have to be mostly without language because the visitors speak so many different ones. In the United States pavilion video both Hillary Clinton and Barack Obama spoke in English (with Chinese subtitles) about the need for world cooperation. The key presentation, however, was a symbolic film where a young girl has a dream for a vacant neighborhood lot that is filled with discarded debris. She plants a flower, and though others in the community are indifferent another flower is planted, but before the project can gain momentum a storm occurs and the flowers are washed away. When the sun comes out, a diverse group of people in the community come together to create a kind of park at the site complete with an old bathtub which has been carved out and converted into a bench. The message seems to be that America is a place of many ethnic groups who can work in harmony to achieve an objective. A cynic might say that that the message is that America has created a mess of things (fiscal deficits, deteriorating educational standards and a dysfunctional government) and it is going to take a lot of hard work to get the country back on the right course.
The French presentation was very direct: We may not be growing as fast or have as powerful military but we know how to enjoy life. A visitor takes a long escalator ride up to the fourth level and then walks down a sloping ramp looking at films and other visuals along the way. The first one, not surprisingly, is on food, but instead of extolling the great French chefs of the past, they installed cameras in the kitchen of the high-end restaurant in the pavilion to show you the skill and creativity going on there. You then pass on to views of the incomparable buildings and parks of Paris, then scenes of the Riviera and finally there are some major paintings from the Louvre. The message is clear: If you want to be a happy person, surrounded by beauty, come to France. I didn’t go to the German pavilion but those who did told me the message was: We make products that are the best in the world. They may cost a little more, but they’re worth it.
Finally, in the China pavilion the focus was, as expected, on hope for a better tomorrow. Unlike the American message of harmony and teamwork, their message was one of creating opportunities for succeeding generations. To me the most creative part of the exhibit was a huge photo mural done in the style of a Chinese scroll painting, depicting village life hundreds of years ago. The difference is that the figures in the mural moved, conducting the tasks that make up their daily activities. The message seemed to be: we have come a long way from the past and we have a lot further to go, but we’re getting there.
While I was in China I had the opportunity to talk with some executives who were operating manufacturing facilities there, and to see a high-tech factory outside of Shanghai. China is beginning to experience some of the problems encountered as an economy matures. Young people are ambitious and impatient. They are anxious to build their resumes and are always on the lookout for better opportunities. The key to success is to have global product standards, but plants need to be run by locals who can build relationships with the workers. Part of the vitality of China’s industry comes from the entrepreneurial nature of the people. There is a greater focus now on developing products for the domestic market rather than for export. One problem is that Chinese managers do not put as high a premium on safety as their American counterparts.
There is a lot of competition for skilled Chinese workers and these people are in a position to make demands. Wage pressure is likely to increase in the future and the currency is likely to be revalued upward. Both of these changes will make China less competitive, but they have such a significant advantage currently that the impact is not likely to be seen for a while. There are also some cultural problems. While workers are hard-working, I heard complaints about the short-term orientation of Chinese managers and their willingness to take shortcuts which are not usually in the best interest of the company.
There are some secular problems brewing. While enormous progress has been made developing China’s infrastructure, there is still much more to do with a population of 1.3 billion. The country still has only 20% of the railway tracks of the United States although it has trains that travel at 250 miles per hour. Agriculture is the principal occupation of 35% of the population, so urbanization has a long way to go. A significant proportion of their population now goes to college, up from 3% twenty years ago, and there is concern that the college graduates are having trouble finding work, but the number of people in the 15 to 24 age group is declining and that is where the entry level workers come from. Perhaps this is a problem that will solve itself in time.
An American business school professor who has a cautious view of China pointed out that the country has benefited from some unsustainable conditions. The savings rate is 40% and unlikely to stay there in a more consumer-oriented economy. Foreign direct investment has been huge, a trillion dollars a year in a $5 trillion economy. Productivity has been improving at a 20% rate, and that has to come down. The trade surplus plus foreign direct investment has led to an enormous build-up in reserves and in the longer term that is likely to lead to political pressures with other countries, as we are seeing in the currency battles China is having with the U.S. Imagine what would happen if China were to start to bid for American companies again as they attempted to do in 2005.
The professor also said income inequality is likely to be an issue going forward. Environmental problems may be developing faster than the government can fix them. As the standard of living rises and the population ages the inadequacy of the healthcare system could become severe. The country has more business schools than the rest of the world combined, but the quality of most of them is not high. Most graduates are very transaction-oriented and not focused on the longer-term issues related to building a great company. As the middle class expands, the lack of democracy will become a bigger issue. Finally, the Chinese government seems less willing to engage in major structural reforms than it was 15 years ago.
Putting it all together my near-term optimism about China remains undaunted. I recognize the enormity of the longer-term issues and I will be watching closely to see how they are addressed. China accounts for a third of the world’s growth today and I expect that to continue for at least the next five years. The stock market will remain volatile but it is imperative that every investor has an understanding of the considerable opportunities that are continuing to develop there.
This was my third trip to China this year and I was impressed to see the country succeeded in bringing its growth rate below 10% for the third quarter, coming in at 9.6% down from 10.3% in the second. This was important because the policy makers there fear growth in excess of 10% could result in serious inflation pressures. The level of inflation in the quarter was 3.5%, which is believed to be a reasonable and containable rate. The government has slowed the rate of monetary expansion from the stimulative levels of last year. At that time the authorities were worried that the economic recessions in Europe and the United States would have a profound impact on Chinese exports and growth would decline to levels limiting the increase in employment.
Last year’s stimulative policies were effective and growth continued to be strong, primarily as a result of internal domestic demand. The much-feared real estate bubble, which looms as a threat to China’s stability in the minds of many Western observers, is considered to be a manageable problem by most analysts within China. They acknowledge that there are a number of high-end condominiums that are unsold, but the majority of China’s housing stock is more modestly priced and the demand for it by the increasingly urbanized population is robust. Since many Chinese investors are not comfortable owning stocks and prefer something more tangible, real estate is a popular storehouse for wealth. As a result, ownership of multiple apartments is common. This results in a high cost of owning an apartment, but a more reasonable cost of renting. A friend of mine rents a 1600 square foot apartment with a $2 million market value for $2000 a month. One percent rates of return are common. A few months ago there was a story floating around that there were 64 million vacant apartments in China. Support for this statement comes from the fact that there was no electricity being consumed in the units. Local analysts, including Stephen Green, Standard Chartered Bank’s local expert on real estate, wonder where the assertions came from since few Chinese apartments have separate meters and most renters pay for electricity on an allocated basis.
At the end of October the government issued its twelfth five-year plan and there were few surprises. Previous plans have emphasized investment in infrastructure and the development of export-oriented industries. The latest plan has few quantitative objectives but clearly focuses on an expansion of the consumer’s role in continuing Chinese growth. This is viewed as a kind of “economic rebalancing.” Other phases of importance in the plan are “regional growth,” “industrial upgrading,” which I read as productivity enhancement, and “energy efficiency.” The plan also includes objectives such as “new strategic industries,” “income distribution,” “social housing,” and “land market and property tax reform” (there are no real estate taxes in China now) According to Tao Wang, the remarkably insightful economist at UBS, the structural changes in the new five-year plan will benefit technology and consumer products and services rather than traditional manufacturing. The emphasis on industrial upgrading should increase the demand for capital equipment from companies throughout the world. While the previous five-year plan (2006 – 2010) resulted in annual growth of 11.4%, even though the developed world was in recession for part of that period, government investment played a dominant role. However, the objective of reducing energy consumption per unit of gross domestic product growth made little progress.
Whether the new plan will reach its objectives is uncertain at this point, but it is clear that China continues to move forward at an impressive pace. It is now the second most important economy in the world at 9% of the world’s gross domestic product and if it maintains its present growth rate, its economy could be larger than that of the United States in twenty years. China’s per capita income is only about $4,000 versus $40,000 in America, but the country is more comparable on a purchasing power parity basis.
The problems are significant; air pollution is serious in the major cities, as anyone who has been there has experienced, and nobody knows what the long-term health implications of this will be. The filtering of information by the state limits intellectual freedom. Examples are China’s conflict with Google and its strong control of the distribution of Western films, only ten of which are allowed into the country each year. The Chinese authorities acknowledge that the human rights and intellectual freedom issues are controversial, but officials there are focused on growth and creating jobs for the hundreds of millions of citizens with current low living standards. They view dissent as a diversion which slows their forward progress. While social policies are important, there is no talk of taxes and fiscal deficits in China, a sharp contrast with the United States. The one-child policy obviously has long-term implications, as does the lack of a healthcare and retirement safety net. The prevalence of petty corruption is an embarrassment. Nevertheless the economy moves ahead relentlessly and the optimism of the people is palpable.
I attended the Shanghai Expo, which is a kind of World’s Fair. It began in May and ran until the end of October. Seventy million visitors have attended and more than a million have been on the grounds in a single day. Without a special pass you can wait up to eight hours to get into a pavilion where you will spend less than an hour. I saw the presentations of three different countries and they were revealing. The videos have to be mostly without language because the visitors speak so many different ones. In the United States pavilion video both Hillary Clinton and Barack Obama spoke in English (with Chinese subtitles) about the need for world cooperation. The key presentation, however, was a symbolic film where a young girl has a dream for a vacant neighborhood lot that is filled with discarded debris. She plants a flower, and though others in the community are indifferent another flower is planted, but before the project can gain momentum a storm occurs and the flowers are washed away. When the sun comes out, a diverse group of people in the community come together to create a kind of park at the site complete with an old bathtub which has been carved out and converted into a bench. The message seems to be that America is a place of many ethnic groups who can work in harmony to achieve an objective. A cynic might say that that the message is that America has created a mess of things (fiscal deficits, deteriorating educational standards and a dysfunctional government) and it is going to take a lot of hard work to get the country back on the right course.
The French presentation was very direct: We may not be growing as fast or have as powerful military but we know how to enjoy life. A visitor takes a long escalator ride up to the fourth level and then walks down a sloping ramp looking at films and other visuals along the way. The first one, not surprisingly, is on food, but instead of extolling the great French chefs of the past, they installed cameras in the kitchen of the high-end restaurant in the pavilion to show you the skill and creativity going on there. You then pass on to views of the incomparable buildings and parks of Paris, then scenes of the Riviera and finally there are some major paintings from the Louvre. The message is clear: If you want to be a happy person, surrounded by beauty, come to France. I didn’t go to the German pavilion but those who did told me the message was: We make products that are the best in the world. They may cost a little more, but they’re worth it.
Finally, in the China pavilion the focus was, as expected, on hope for a better tomorrow. Unlike the American message of harmony and teamwork, their message was one of creating opportunities for succeeding generations. To me the most creative part of the exhibit was a huge photo mural done in the style of a Chinese scroll painting, depicting village life hundreds of years ago. The difference is that the figures in the mural moved, conducting the tasks that make up their daily activities. The message seemed to be: we have come a long way from the past and we have a lot further to go, but we’re getting there.
While I was in China I had the opportunity to talk with some executives who were operating manufacturing facilities there, and to see a high-tech factory outside of Shanghai. China is beginning to experience some of the problems encountered as an economy matures. Young people are ambitious and impatient. They are anxious to build their resumes and are always on the lookout for better opportunities. The key to success is to have global product standards, but plants need to be run by locals who can build relationships with the workers. Part of the vitality of China’s industry comes from the entrepreneurial nature of the people. There is a greater focus now on developing products for the domestic market rather than for export. One problem is that Chinese managers do not put as high a premium on safety as their American counterparts.
There is a lot of competition for skilled Chinese workers and these people are in a position to make demands. Wage pressure is likely to increase in the future and the currency is likely to be revalued upward. Both of these changes will make China less competitive, but they have such a significant advantage currently that the impact is not likely to be seen for a while. There are also some cultural problems. While workers are hard-working, I heard complaints about the short-term orientation of Chinese managers and their willingness to take shortcuts which are not usually in the best interest of the company.
There are some secular problems brewing. While enormous progress has been made developing China’s infrastructure, there is still much more to do with a population of 1.3 billion. The country still has only 20% of the railway tracks of the United States although it has trains that travel at 250 miles per hour. Agriculture is the principal occupation of 35% of the population, so urbanization has a long way to go. A significant proportion of their population now goes to college, up from 3% twenty years ago, and there is concern that the college graduates are having trouble finding work, but the number of people in the 15 to 24 age group is declining and that is where the entry level workers come from. Perhaps this is a problem that will solve itself in time.
An American business school professor who has a cautious view of China pointed out that the country has benefited from some unsustainable conditions. The savings rate is 40% and unlikely to stay there in a more consumer-oriented economy. Foreign direct investment has been huge, a trillion dollars a year in a $5 trillion economy. Productivity has been improving at a 20% rate, and that has to come down. The trade surplus plus foreign direct investment has led to an enormous build-up in reserves and in the longer term that is likely to lead to political pressures with other countries, as we are seeing in the currency battles China is having with the U.S. Imagine what would happen if China were to start to bid for American companies again as they attempted to do in 2005.
The professor also said income inequality is likely to be an issue going forward. Environmental problems may be developing faster than the government can fix them. As the standard of living rises and the population ages the inadequacy of the healthcare system could become severe. The country has more business schools than the rest of the world combined, but the quality of most of them is not high. Most graduates are very transaction-oriented and not focused on the longer-term issues related to building a great company. As the middle class expands, the lack of democracy will become a bigger issue. Finally, the Chinese government seems less willing to engage in major structural reforms than it was 15 years ago.
Putting it all together my near-term optimism about China remains undaunted. I recognize the enormity of the longer-term issues and I will be watching closely to see how they are addressed. China accounts for a third of the world’s growth today and I expect that to continue for at least the next five years. The stock market will remain volatile but it is imperative that every investor has an understanding of the considerable opportunities that are continuing to develop there.
Monday, November 1, 2010
Marc Faber: Fed's QE2 Could Trigger Market Correction
Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the potential impact of further quantitative easing (QE2) by the U.S. Federal Reserve in a Bloomberg interview on Oct. 36 (clip below).
Correction Triggered by QE2?
Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.
Equity has done well in September and October months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue.
Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.
But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.
Equity Better for the Next Decade
Looking at investing for the next ten years, equities-- emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash. However, Faber advises against financial, auto, and aircraft. He's been in the high tech sector and likes Microsoft (MSFT).
Precious Metals Due for Pullback
Faber is currently recommending agriculture commodities, and the accumulation of precious metals. On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expects the next leg up in 2011.
Dollar Near An Inflection Point
Faber says the dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought. So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices.
He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.
Expect a Strong Pullback of Chinese Economy
Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances.
According to Faber, the 0.25% interest rate hike effective Oct. 20 by the PBoC is "meaningless," because of skyrocketing property prices, and the cost of living inflation has gone up much more than the official figure.
He notes food prices have seen high inflation, and because of low GDP per capita where food would account for a high percentage of total expenditure, Faber estimates that the typical consumer inflation rate in countries like China, India, and Vietnam should be around 8 to 18 percent per year.
My Take on China Inflation
The inflation rate in China was last reported at 3.60 percent in September of 2010, climbing at the fastest pace in two years. However, there is some hidden rampant inflation such as 50% on apparel, 20% on food, as reported by BusinessWeek.
Many analysts as well as academics also question how China could have such a relatively moderate inflation rate given its double-digit growth and upward pressure on wages. Michael Pettis, a finance professor at Peking University, for example, estimates that "Inflation could well be 6 percent now for most people in China."
There's also another indicator--growth of money supply--which has a proven strong correlation with inflation. China's money supply, M1 and M2, has expanded by 56 percent and 53 percent respectively over the past two years. Currently, with the various tightening measures, both money supply figures are still growing at an annual rate of about 20 percent, based on Bloomberg data.
Furthermore, the continuing massive rural-to-urban migration will likely keep pushing up rents and food prices, just to name two of the many categories, and wages are expected to rise around 8 percent this year.
As consumer inflation is typically a lagging indicator, China may experience continuing higher CPI. That means Beijing is facing an increasingly difficult task of containing inflation, while maintaining sufficient growth to prevent a mass civil unrest. As such, there will likely be more tightening, which would put the markets on a few roller coaster rides in the next two years or so.
Nevertheless, since Chinese policymakers are keeping a close inflation watch, and are already taking actions (which is the key), I believe China is heading towards more sustainable growth. And if China is "on a treadmill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.
Correction Triggered by QE2?
Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.
Equity has done well in September and October months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue.
Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.
But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.
Equity Better for the Next Decade
Looking at investing for the next ten years, equities-- emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash. However, Faber advises against financial, auto, and aircraft. He's been in the high tech sector and likes Microsoft (MSFT).
Precious Metals Due for Pullback
Faber is currently recommending agriculture commodities, and the accumulation of precious metals. On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expects the next leg up in 2011.
Dollar Near An Inflection Point
Faber says the dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought. So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices.
He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.
Expect a Strong Pullback of Chinese Economy
Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances.
According to Faber, the 0.25% interest rate hike effective Oct. 20 by the PBoC is "meaningless," because of skyrocketing property prices, and the cost of living inflation has gone up much more than the official figure.
He notes food prices have seen high inflation, and because of low GDP per capita where food would account for a high percentage of total expenditure, Faber estimates that the typical consumer inflation rate in countries like China, India, and Vietnam should be around 8 to 18 percent per year.
My Take on China Inflation
The inflation rate in China was last reported at 3.60 percent in September of 2010, climbing at the fastest pace in two years. However, there is some hidden rampant inflation such as 50% on apparel, 20% on food, as reported by BusinessWeek.
Many analysts as well as academics also question how China could have such a relatively moderate inflation rate given its double-digit growth and upward pressure on wages. Michael Pettis, a finance professor at Peking University, for example, estimates that "Inflation could well be 6 percent now for most people in China."
There's also another indicator--growth of money supply--which has a proven strong correlation with inflation. China's money supply, M1 and M2, has expanded by 56 percent and 53 percent respectively over the past two years. Currently, with the various tightening measures, both money supply figures are still growing at an annual rate of about 20 percent, based on Bloomberg data.
Furthermore, the continuing massive rural-to-urban migration will likely keep pushing up rents and food prices, just to name two of the many categories, and wages are expected to rise around 8 percent this year.
As consumer inflation is typically a lagging indicator, China may experience continuing higher CPI. That means Beijing is facing an increasingly difficult task of containing inflation, while maintaining sufficient growth to prevent a mass civil unrest. As such, there will likely be more tightening, which would put the markets on a few roller coaster rides in the next two years or so.
Nevertheless, since Chinese policymakers are keeping a close inflation watch, and are already taking actions (which is the key), I believe China is heading towards more sustainable growth. And if China is "on a treadmill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.
Wednesday, October 27, 2010
5 Questions With Marc Faber
Q: What's the best investment you've ever made?
A: Usually when faced with this question people will think of investments in monetary terms. However, in our lives, our best investments are probably the ones you cannot measure the way a portfolio manager will measure his "performance".
These investments relate to education, culture, job satisfaction, eagerness to learn, and happiness through philosophy, religion, self-improvement, compassion, love, a harmonious family, friendships, readiness to do good deeds etc.
I do know some of the world's richest people. In monetary terms, they all performed very well. In terms of a fulfilling life, I am less sure.
When it comes to money, the best investments were probably the ones I did not make.
Q: How about the worst investment decision and how did it end up?
A: My worst investment decisions so far is to lend money to friends. So far, it has all came to zero.
Shorting the Nasdaq in 1998 was also a disaster, and it will remain, in my life as an investment advisor and fund manager, a very black spot. The damage was considerable.
Q. Do you think markets are becoming increasingly risky for individual investors?
A: No, but they are likely to remain extremely volatile for a long time and the key will be to preserve your capital given the people we have at the U.S. Federal Reserve, whose intention is to debase the value of paper money.
Q: What were some of the key lessons learnt during the Asian Financial Crisis?
A: Prior to the Asian Crisis, I was extremely bearish. But the severity of the crisis surprised even me.
Q: Who / what has been the biggest influence in your life?
A: The Austrian School of Economics, my history teacher, Buddha, and my best friend - Marc Faber.
A: Usually when faced with this question people will think of investments in monetary terms. However, in our lives, our best investments are probably the ones you cannot measure the way a portfolio manager will measure his "performance".
These investments relate to education, culture, job satisfaction, eagerness to learn, and happiness through philosophy, religion, self-improvement, compassion, love, a harmonious family, friendships, readiness to do good deeds etc.
I do know some of the world's richest people. In monetary terms, they all performed very well. In terms of a fulfilling life, I am less sure.
When it comes to money, the best investments were probably the ones I did not make.
Q: How about the worst investment decision and how did it end up?
A: My worst investment decisions so far is to lend money to friends. So far, it has all came to zero.
Shorting the Nasdaq in 1998 was also a disaster, and it will remain, in my life as an investment advisor and fund manager, a very black spot. The damage was considerable.
Q. Do you think markets are becoming increasingly risky for individual investors?
A: No, but they are likely to remain extremely volatile for a long time and the key will be to preserve your capital given the people we have at the U.S. Federal Reserve, whose intention is to debase the value of paper money.
Q: What were some of the key lessons learnt during the Asian Financial Crisis?
A: Prior to the Asian Crisis, I was extremely bearish. But the severity of the crisis surprised even me.
Q: Who / what has been the biggest influence in your life?
A: The Austrian School of Economics, my history teacher, Buddha, and my best friend - Marc Faber.
Saturday, October 2, 2010
Two Dinner Party Menu
Sunday
Cheese, smoked musselle, crackers
Pumpkin Soup (Japanese Pumpkin, light cream, cream cheese)
DongPu Rou
Cuban Sea Bass
Asparagus
Salad
Dessert
Tuesday
Chinese appetizer
Pumpkin Soup
Shrimp Ettoufee
Lamb Chop
Asparagus
Dessert
Cheese, smoked musselle, crackers
Pumpkin Soup (Japanese Pumpkin, light cream, cream cheese)
DongPu Rou
Cuban Sea Bass
Asparagus
Salad
Dessert
Tuesday
Chinese appetizer
Pumpkin Soup
Shrimp Ettoufee
Lamb Chop
Asparagus
Dessert
Thursday, September 30, 2010
Monday, September 6, 2010
New Chapter
I have stopped posting here for many months, finally it is time for me to start again, and this time I will not be a quitter, I hope.
To make my blog last, I will not only post articles about investment, but also books, recipes, thoughts, and last but not least, gossips.
To make my blog last, I will not only post articles about investment, but also books, recipes, thoughts, and last but not least, gossips.
Sunday, May 3, 2009
Daughter's Poem
My Obligation: To Mom
Mother’s Day is coming,
And a gift I’ve yet to find,
So I write this poem to you,
Though it is a waste of time
This is my obligation,
Which I do not want to do
But it is my way of saying:
Happy Mother’s Day to you
The spring’s warm air is stirring
Calm and hopeful, warm and breezy
And though one wouldn’t think to add,
It is also very cheesy
This is my obligation,
Which I do not want to do
But it’s my ONLY way of saying:
Happy Mother’s Day to you
Though you will not give me discounts,
And you get mad far too quickly,
Still you put hope in my future,
And you do not do it meekly
This is my obligation,
Which I do not want to do
But it’s an okay way of saying:
Happy Mother’s Day to you
When the happy day is over
And the last “thank you”‘s have gone,
Still you’ll always have this poem,
Which is almost like a song
This is my obligation,
Which I do not want to do,
But I guess it’s nice to say:
Happy Mother’s Day to you.
When the weather here is rainy
Or the economy is bad
You can always read this poem again
And you won’t feel quite as sad
It’s more than a little cheesy,
And perhaps not all heartfelt,
But I hope you will appreciate
These words to you I’ve dealt
This is my obligation
Which I do not want to do
Yet I hope you’ll like me saying:
Happy Mother’s Day to you
My “cuteness” years are over
And my teen has not begun
But still your task for raising me,
Is not even close to done
This is my obligation,
Which I don’t really want to do
But it’s meaningful to say:
Happy Mother’s Day to you
I know it’s really mushy,
But I’ll write it to you still
I’d like to say I love you,
Always have and always will
This is not my obligation
It’s something nice to do
And the message of this is:
Happy Mother’s Day to you
Mother’s Day is coming,
And a gift I’ve yet to find,
So I write this poem to you,
Though it is a waste of time
This is my obligation,
Which I do not want to do
But it is my way of saying:
Happy Mother’s Day to you
The spring’s warm air is stirring
Calm and hopeful, warm and breezy
And though one wouldn’t think to add,
It is also very cheesy
This is my obligation,
Which I do not want to do
But it’s my ONLY way of saying:
Happy Mother’s Day to you
Though you will not give me discounts,
And you get mad far too quickly,
Still you put hope in my future,
And you do not do it meekly
This is my obligation,
Which I do not want to do
But it’s an okay way of saying:
Happy Mother’s Day to you
When the happy day is over
And the last “thank you”‘s have gone,
Still you’ll always have this poem,
Which is almost like a song
This is my obligation,
Which I do not want to do,
But I guess it’s nice to say:
Happy Mother’s Day to you.
When the weather here is rainy
Or the economy is bad
You can always read this poem again
And you won’t feel quite as sad
It’s more than a little cheesy,
And perhaps not all heartfelt,
But I hope you will appreciate
These words to you I’ve dealt
This is my obligation
Which I do not want to do
Yet I hope you’ll like me saying:
Happy Mother’s Day to you
My “cuteness” years are over
And my teen has not begun
But still your task for raising me,
Is not even close to done
This is my obligation,
Which I don’t really want to do
But it’s meaningful to say:
Happy Mother’s Day to you
I know it’s really mushy,
But I’ll write it to you still
I’d like to say I love you,
Always have and always will
This is not my obligation
It’s something nice to do
And the message of this is:
Happy Mother’s Day to you
Monday, March 30, 2009
Bottom is insight (don't like this title at all!)
BEAR MOVES IN THE stock market have anticipated nine out of the past five recessions, as an economist once famously quipped. Rebounds in stock prices are no more reliable in anticipating economic recoveries.
The only way to tell if the recent rebound in stocks is truly signaling recovery is to look at supporting data. And those data continue to suggest a bottoming in the economy by the second quarter, which would then turn out to have been duly anticipated by a bottom in the stock market in early March, the first quarter's final month.
This hardly suggests the bull is about to roar. Growth of real gross domestic product in the second half of 2009 is likely to be modest, running at an annual rate of 2% to 3%. The level of real GDP by year end will still be lower than the recent peak. There is always a danger, then, that equity prices will run ahead of this modest outlook. But at least the outlook is beginning to look positive.
Among upside surprises reported last week, one was the widespread rebound in February of durable-goods orders, tracked monthly by the Census Bureau. A durable good, as you might imagine, is technically defined as a tangible item that lasts at least three years. As such, it includes items that consumers buy, like cars and computers (although not plastics like Tupperware), but mainly covers nonconsumer goods like machinery and equipment.
The Census report on durable-goods orders is therefore a useful look into the activities of the manufacturing sector. (Yes, Virginia, there really is a domestic-manufacturing sector, even if much of it is owned by foreign companies.) The February increase in orders followed six consecutive monthly decreases and only partially reversed the decline in January. It tended to confirm the picture of a manufacturing sector that is still contracting, but at a slower rate. If final demand for goods really is beginning to stabilize, then manufacturing activity should be due for a rebound.
THE STRONGER PATTERN OF final demand got further confirmation from data for real consumer spending, released Friday. In the first two months of this year, real personal consumption ran positive, virtually guaranteeing that it will be up in the first quarter relative to the fourth.
Even if consumption flattens in the second quarter, the excessive liquidation of inventories should mean that production will still be due for a pick-up. Despite crushing job losses, it is still possible consumption will trend upward.
Job losses are not the only decisive factor in determining the trend in consumption. Otherwise, we would have to wonder how consumer spending could be higher in the first quarter than it was in the fourth, when the jobless rate was lower. One key factor that should help to buoy consumption is mortgage refinancings, fueled by a mortgage interest rate of 4.85%, the lowest on record.
The low mortgage interest rate helped bring another upside surprise reported last week, the February increase in existing home sales. With strengthening home sales, the negative wealth effect from declining home prices should diminish. One key home price tracked by the Federal Housing Finance Agency actually showed an increase in January.
Already much diminished is the negative wealth effect from the decline in stocks. That, too, should help buoy consumption.
The only way to tell if the recent rebound in stocks is truly signaling recovery is to look at supporting data. And those data continue to suggest a bottoming in the economy by the second quarter, which would then turn out to have been duly anticipated by a bottom in the stock market in early March, the first quarter's final month.
This hardly suggests the bull is about to roar. Growth of real gross domestic product in the second half of 2009 is likely to be modest, running at an annual rate of 2% to 3%. The level of real GDP by year end will still be lower than the recent peak. There is always a danger, then, that equity prices will run ahead of this modest outlook. But at least the outlook is beginning to look positive.
Among upside surprises reported last week, one was the widespread rebound in February of durable-goods orders, tracked monthly by the Census Bureau. A durable good, as you might imagine, is technically defined as a tangible item that lasts at least three years. As such, it includes items that consumers buy, like cars and computers (although not plastics like Tupperware), but mainly covers nonconsumer goods like machinery and equipment.
The Census report on durable-goods orders is therefore a useful look into the activities of the manufacturing sector. (Yes, Virginia, there really is a domestic-manufacturing sector, even if much of it is owned by foreign companies.) The February increase in orders followed six consecutive monthly decreases and only partially reversed the decline in January. It tended to confirm the picture of a manufacturing sector that is still contracting, but at a slower rate. If final demand for goods really is beginning to stabilize, then manufacturing activity should be due for a rebound.
THE STRONGER PATTERN OF final demand got further confirmation from data for real consumer spending, released Friday. In the first two months of this year, real personal consumption ran positive, virtually guaranteeing that it will be up in the first quarter relative to the fourth.
Even if consumption flattens in the second quarter, the excessive liquidation of inventories should mean that production will still be due for a pick-up. Despite crushing job losses, it is still possible consumption will trend upward.
Job losses are not the only decisive factor in determining the trend in consumption. Otherwise, we would have to wonder how consumer spending could be higher in the first quarter than it was in the fourth, when the jobless rate was lower. One key factor that should help to buoy consumption is mortgage refinancings, fueled by a mortgage interest rate of 4.85%, the lowest on record.
The low mortgage interest rate helped bring another upside surprise reported last week, the February increase in existing home sales. With strengthening home sales, the negative wealth effect from declining home prices should diminish. One key home price tracked by the Federal Housing Finance Agency actually showed an increase in January.
Already much diminished is the negative wealth effect from the decline in stocks. That, too, should help buoy consumption.
Monday, March 23, 2009
Soros: Ready for slow growth
Billionaire hedge fund manager George Soros has been warning of a global financial crisis for some time now. And when The Australian’s Peter Wilson interviewed the former partner of Jim Rogers lately, he noted how Soros has been handsomely-rewarded for such foresight. Wilson wrote yesterday:
And foreseeing the biggest economic crisis since the Great Depression has certainly paid off financially. In August 2007, with the first symptoms of the credit crunch on the horizon, Soros came out of semi-retirement to reassume control of his Quantum investment fund, astutely repositioning it for the tsunami about to hit. By year’s end Quantum was up almost 32 per cent for 2007, netting Soros profits of $US2.9 billion at a time when other financiers were struggling to break even.
His fortune was estimated at $US11 billion by Forbes in September 2008 and it has grown even larger amid the spreading financial carnage. That same year, in which Hedge Fund Research estimates the hedge fund industry lost a record 18.3 per cent, Soros was up another 9 per cent.
The chairman of Soros Fund Management, whose new book The Crash of 2008 and What it Means: The New Paradigm for Financial Markets is scheduled to be released before the end of this month, shared his latest outlook for the global economy with readers of the Australian publication. From the piece:
The entire world, but especially the West, should now brace for slower economic growth, he warns, and it will be at least a decade before the US sees robust growth. One important effect will be a new wariness in China about the US economic model, Soros says. “The Chinese used to look up to the West and try to imitate the West and they have now discovered that it may not be the right thing to imitate. They now feel suddenly impelled to develop their own system and in some ways they are actually ahead of us.
“For instance, they have been using variable capital requirements as a policy tool. They changed the minimum capital requirements for banks 17 times in the past year, first raising it rapidly and then lowering it. I think we will have to learn to do the same thing.”
In any case, the Chinese government can no longer be relied on to plough money into US government debt, he warns. “They will have less money to spend because their surplus is shrinking and their exports are falling, so they will have less to dispose of, so I think that there will be a definite shift.”
And foreseeing the biggest economic crisis since the Great Depression has certainly paid off financially. In August 2007, with the first symptoms of the credit crunch on the horizon, Soros came out of semi-retirement to reassume control of his Quantum investment fund, astutely repositioning it for the tsunami about to hit. By year’s end Quantum was up almost 32 per cent for 2007, netting Soros profits of $US2.9 billion at a time when other financiers were struggling to break even.
His fortune was estimated at $US11 billion by Forbes in September 2008 and it has grown even larger amid the spreading financial carnage. That same year, in which Hedge Fund Research estimates the hedge fund industry lost a record 18.3 per cent, Soros was up another 9 per cent.
The chairman of Soros Fund Management, whose new book The Crash of 2008 and What it Means: The New Paradigm for Financial Markets is scheduled to be released before the end of this month, shared his latest outlook for the global economy with readers of the Australian publication. From the piece:
The entire world, but especially the West, should now brace for slower economic growth, he warns, and it will be at least a decade before the US sees robust growth. One important effect will be a new wariness in China about the US economic model, Soros says. “The Chinese used to look up to the West and try to imitate the West and they have now discovered that it may not be the right thing to imitate. They now feel suddenly impelled to develop their own system and in some ways they are actually ahead of us.
“For instance, they have been using variable capital requirements as a policy tool. They changed the minimum capital requirements for banks 17 times in the past year, first raising it rapidly and then lowering it. I think we will have to learn to do the same thing.”
In any case, the Chinese government can no longer be relied on to plough money into US government debt, he warns. “They will have less money to spend because their surplus is shrinking and their exports are falling, so they will have less to dispose of, so I think that there will be a definite shift.”
Monday, March 16, 2009
A Continent Adrift
I’m concerned about Europe. Actually, I’m concerned about the whole world — there are no safe havens from the global economic storm. But the situation in Europe worries me even more than the situation in America.
Just to be clear, I’m not about to rehash the standard American complaint that Europe’s taxes are too high and its benefits too generous. Big welfare states aren’t the cause of Europe’s current crisis. In fact, as I’ll explain shortly, they’re actually a mitigating factor.
The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.
Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.
On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.
This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump.
But such “automatic stabilizers” are no substitute for positive action.
Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.
But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.
This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.
You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.
Europe, in other words, is turning out to be structurally weak in a time of crisis.
The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.
For much of the past decade Spain was Europe’s Florida, its economy buoyed by a huge speculative housing boom. As in Florida, boom has now turned to bust. Now Spain needs to find new sources of income and employment to replace the lost jobs in construction.
In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.
Does all this mean that Europe was wrong to let itself become so tightly integrated? Does it mean, in particular, that the creation of the euro was a mistake? Maybe.
But Europe can still prove the skeptics wrong, if its politicians start showing more leadership. Will they?
Just to be clear, I’m not about to rehash the standard American complaint that Europe’s taxes are too high and its benefits too generous. Big welfare states aren’t the cause of Europe’s current crisis. In fact, as I’ll explain shortly, they’re actually a mitigating factor.
The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis.
Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn.
On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump.
This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump.
But such “automatic stabilizers” are no substitute for positive action.
Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.
But there’s a deeper problem: Europe’s economic and monetary integration has run too far ahead of its political institutions. The economies of Europe’s many nations are almost as tightly linked as the economies of America’s many states — and most of Europe shares a common currency. But unlike America, Europe doesn’t have the kind of continentwide institutions needed to deal with a continentwide crisis.
This is a major reason for the lack of fiscal action: there’s no government in a position to take responsibility for the European economy as a whole. What Europe has, instead, are national governments, each of which is reluctant to run up large debts to finance a stimulus that will convey many if not most of its benefits to voters in other countries.
You might expect monetary policy to be more forceful. After all, while there isn’t a European government, there is a European Central Bank. But the E.C.B. isn’t like the Fed, which can afford to be adventurous because it’s backed by a unitary national government — a government that has already moved to share the risks of the Fed’s boldness, and will surely cover the Fed’s losses if its efforts to unfreeze financial markets go bad. The E.C.B., which must answer to 16 often-quarreling governments, can’t count on the same level of support.
Europe, in other words, is turning out to be structurally weak in a time of crisis.
The biggest question is what will happen to those European economies that boomed in the easy-money environment of a few years ago, Spain in particular.
For much of the past decade Spain was Europe’s Florida, its economy buoyed by a huge speculative housing boom. As in Florida, boom has now turned to bust. Now Spain needs to find new sources of income and employment to replace the lost jobs in construction.
In the past, Spain would have sought improved competitiveness by devaluing its currency. But now it’s on the euro — and the only way forward seems to be a grinding process of wage cuts. This process would have been difficult in the best of times; it will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.
Does all this mean that Europe was wrong to let itself become so tightly integrated? Does it mean, in particular, that the creation of the euro was a mistake? Maybe.
But Europe can still prove the skeptics wrong, if its politicians start showing more leadership. Will they?
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