This 14 June article by Doug McIntyre for Investopedia explains some of the pitfalls and concerns for those who would like to invest in China.
Another thing to remember is that many Chinese companies make scarcely any profit, which is why their banking system is carrying a lot of poor-quality debt.
The real profit appears to be, not in China's factories, but in transporting their goods worldwide, and selling them: not sheds, but ships and shops. The traders are surfing the wave of wealth out of the West.
Wednesday, June 20, 2007
How far could the Dow (and FTSE) fall?
Some (e.g. a commenter on one of my May 12 posts) think the Dow couldn't possibly fall 50%, but there is no objective support level for a falling market, it's just a balance between buyers and sellers.
The Wall Street Crash started dramatically, but took about 3 years to complete its decline. On September 3, 1929 the Dow reached a peak at 381.17; by July 8, 1932 it stood at 41.22.
Serious, experienced analysts like Michael Panzner and Peter Schiff tell us that in some respects, the systemic financial problems we now face are indeed comparable to those times. Our advantage is that we have that history to warn us.
UPDATE
More recently, the FTSE 100 reached a peak of 6,930 on December 31, 1999 and a low of 3,287 in March 2003, as shown here. That's a drop of over 52%.
At the time of writing (5:42 pm GMT) it stands at 6,649, but you have to see this in the context of massive monetary inflation; compared with the end of 1999 in real terms, it's lost a lot of ground already. That's why I've suggested that we may already be in a bear market that is disguised by inflation. As in Alice in Wonderland, it has to run quite hard just to stay in the same place.
The Wall Street Crash started dramatically, but took about 3 years to complete its decline. On September 3, 1929 the Dow reached a peak at 381.17; by July 8, 1932 it stood at 41.22.
Serious, experienced analysts like Michael Panzner and Peter Schiff tell us that in some respects, the systemic financial problems we now face are indeed comparable to those times. Our advantage is that we have that history to warn us.
UPDATE
More recently, the FTSE 100 reached a peak of 6,930 on December 31, 1999 and a low of 3,287 in March 2003, as shown here. That's a drop of over 52%.
At the time of writing (5:42 pm GMT) it stands at 6,649, but you have to see this in the context of massive monetary inflation; compared with the end of 1999 in real terms, it's lost a lot of ground already. That's why I've suggested that we may already be in a bear market that is disguised by inflation. As in Alice in Wonderland, it has to run quite hard just to stay in the same place.
Chinese billionaires
Forbes China rich list shows that there are already 10 billionaires. Shen Wenrong, who imported the ThyssenKrupp steelworks from Dortmund, is 18th on the list.
Tuesday, June 19, 2007
James Kynge on China in 2014
If you've read James Kynge's very worrying book "China shakes the world" (2006), you may be interested in an article he published before then, in November 2004. It's in "The Alchemist", which is the quarterly journal of the London Bullion Market Association. Some salient points (though I can't say whether Kynge would say exactly the same things now):
1. The housing market has soared in China, creating massive wealth.
2. "The economy does not look terribly overheated or overbuilt."
3. "Consumer spending - especially on services - is quite a bit higher than official statistics show." (Perhaps this will answer Richard Duncan's recommendation to stimulate demand in developing economies.)
4. Property prices are so high (in 2004) that the rate of appreciation must slow down, which in turn will reduce the demand for steel, aluminium and cement; "a GDP slowdown is in prospect."
5. In 2003, China was responsible for nearly all the increased demand for copper, nickel and steel, but its appetite will endure: "When, and if, China overtakes the US as the world's largest economy, its people on a per capita basis will only be one sixth as wealthy as Americans. They will still be hungry, still cost competitive."
6. The middle class will grow more quickly than GDP; high-tech industrial wage rates will increase; low-tech factories are being forced inland, away from the trading seaboard.
7. China will move from manufacturing (at that time 60% of GDP, versus 30% in the US) towards services and a knowledge economy.
8. China will not collapse, but environmental problems will slow its industrial growth. Land is already intensively used, the north is short of water; air pollution is increasing the burden of health care to the point where the cost may exceed the value of extra factory output.
9. Demographics will also slow China - the over-60s are expected to rise from 11% of the population in 2004 to 28% by 2040. "China may grow old before it grows rich."
10. "China already has too much stuff" - the oversupply of manufactured goods has wiped out profit margins and the banking system is full of debt.
Going back to point 5 for a moment, Kynge doesn't see an end to the trading imbalance. China may decelerate, but it's still going to suck wealth out of the West for a long time.
1. The housing market has soared in China, creating massive wealth.
2. "The economy does not look terribly overheated or overbuilt."
3. "Consumer spending - especially on services - is quite a bit higher than official statistics show." (Perhaps this will answer Richard Duncan's recommendation to stimulate demand in developing economies.)
4. Property prices are so high (in 2004) that the rate of appreciation must slow down, which in turn will reduce the demand for steel, aluminium and cement; "a GDP slowdown is in prospect."
5. In 2003, China was responsible for nearly all the increased demand for copper, nickel and steel, but its appetite will endure: "When, and if, China overtakes the US as the world's largest economy, its people on a per capita basis will only be one sixth as wealthy as Americans. They will still be hungry, still cost competitive."
6. The middle class will grow more quickly than GDP; high-tech industrial wage rates will increase; low-tech factories are being forced inland, away from the trading seaboard.
7. China will move from manufacturing (at that time 60% of GDP, versus 30% in the US) towards services and a knowledge economy.
8. China will not collapse, but environmental problems will slow its industrial growth. Land is already intensively used, the north is short of water; air pollution is increasing the burden of health care to the point where the cost may exceed the value of extra factory output.
9. Demographics will also slow China - the over-60s are expected to rise from 11% of the population in 2004 to 28% by 2040. "China may grow old before it grows rich."
10. "China already has too much stuff" - the oversupply of manufactured goods has wiped out profit margins and the banking system is full of debt.
Going back to point 5 for a moment, Kynge doesn't see an end to the trading imbalance. China may decelerate, but it's still going to suck wealth out of the West for a long time.
Marc Faber: consumer spending to decrease
Seeking Alpha's Sunday review of fund manager stock suggestions reveals that Marc Faber expects consumer discretionary spending to decrease:
"He calls for a 10% correction by year-end, with emerging markets down 20%."
That may reduce the monthly trade deficit for a while, but won't turn it into a surplus. China's ultra-low wage costs, combined with what seems to be very loose enforcement of intellectual property rights, are still set to hollow out Western industrial production of all kinds, as James Kynge's book makes abundantly and frighteningly clear.
It's all very well finding ways for individual investors to benefit, but if you haven't got spare money to invest, you can't back the winner in this unequal contest. Without some degree of prosperity, what real peace will our countries have? I'd like to see a credible national economic plan from our politicians.
"He calls for a 10% correction by year-end, with emerging markets down 20%."
That may reduce the monthly trade deficit for a while, but won't turn it into a surplus. China's ultra-low wage costs, combined with what seems to be very loose enforcement of intellectual property rights, are still set to hollow out Western industrial production of all kinds, as James Kynge's book makes abundantly and frighteningly clear.
It's all very well finding ways for individual investors to benefit, but if you haven't got spare money to invest, you can't back the winner in this unequal contest. Without some degree of prosperity, what real peace will our countries have? I'd like to see a credible national economic plan from our politicians.
Pay your bills, or lose your assets
You can rely on Richard Daughty to carry on fighting the brave fight - I really think it's pro bono publico, as I don't see any attempt to turn his work into sales leads for him.
Yesterday's essay continues with the theme of global credit expansion to keep up with the seemingly unstoppable increase of dollars. I suppose that wouldn't be so bad, if it weren't for two considerations:
1. Inflation is unevenly spread, and the 10+ % money supply increase is inadequately reflected in your bank savings interest, so your money is rotting away there. You then have the unenviable task of deciding where else to store your wealth to stop it shrinking.
2. While our governments continue to turn the currency into used bus tickets, the trade imbalances deteriorate, and the international wealth transfers and the world's economic instability worsen.
Will America always be able to make the interest payments on its rapidly-swelling debt? Or is she prepared to see the debt turn into foreign ownership of the economy?
There's a century-old Punch cartoon that shows a plumber sitting on the step of a middle-class house. A passing colleague asks him how the job is going, and he replies that he's taken the house in payment for his work.
Yesterday's essay continues with the theme of global credit expansion to keep up with the seemingly unstoppable increase of dollars. I suppose that wouldn't be so bad, if it weren't for two considerations:
1. Inflation is unevenly spread, and the 10+ % money supply increase is inadequately reflected in your bank savings interest, so your money is rotting away there. You then have the unenviable task of deciding where else to store your wealth to stop it shrinking.
2. While our governments continue to turn the currency into used bus tickets, the trade imbalances deteriorate, and the international wealth transfers and the world's economic instability worsen.
Will America always be able to make the interest payments on its rapidly-swelling debt? Or is she prepared to see the debt turn into foreign ownership of the economy?
There's a century-old Punch cartoon that shows a plumber sitting on the step of a middle-class house. A passing colleague asks him how the job is going, and he replies that he's taken the house in payment for his work.
Monday, June 18, 2007
Mr Buffett takes a train
Seeking Alpha reports today that Warren Buffett now shares George Soros' recently-discovered liking for railways - perhaps this illustrates a transport energy-efficiency theme.
Subscribe to:
Posts (Atom)