From Pension Pulse:
Keith thinks that all this talk of excess capacity in China is missing the bigger picture. He told me that China is planning and preparing for the future so they have every reason to over-invest now and build up their infrastructure aand stockpile the resources. It makes sense when you think about it; they saw all the mistakes the Western world made and decided its best to be better prepared for the future.
There are still problems in China, most notably the disparities between the rural and urban population, but they're making leaps and bounds in almost every area, including clean energy where China is securing first mover advantage in the market for renewable energy.
Friday, December 04, 2009
Thursday, December 03, 2009
Could Japan inadvertently start a run on America's credit?
Florida-based professional investor Karl Denninger comments on a rumour that Japan is considering selling U.S. government bonds ("Treasuries"). He reflects that such a move could begin a run on U.S. Treasuries, and the largest holder by far is China, who some think may have up to $1 trillion of U.S. debt.
A selloff would put pressure on the U.S. to raise interest rates, and this could have a domino effect in other countries. Higher interest rates make businesses' finance tougher, as well as hitting their customers' disposable income and therefore reducing demand for goods and services. So a crisis of faith in America's ability to repay its debts, and to maintain the exchange value of the dollar, could plunge the world economy back into recession. The investment outlook in this scenario would not be positive.
Denninger is a long-standing Cassandra on the U.S. economy, but he has a fairly sizeable following in the American personal investment community and despite his tendency to express himself in stark terms, his views and information should not be lightly dismissed.
A further reason to take him seriously is what has been happening between China and its U.S. debtors. It's been said some time ago, that China has been selling the debt of U.S. States and corporations in favour of U.S. Treasuries, because the latter are fully backed by the American Government. In retrospect, this seems to have been a very prudent move, since a number of U.S. States are now having significant difficulty in balancing their budgets, owing to a shrinking tax income and rising bills for unemployment benefit. It's understood that China has also been selling longer-term Treasuries to buy shorter-dated ones, because the latter offer an earlier exit should America's credit rating and currency weaken. So the notion that China might suddenly need or want to sell off Treasuries, is not entirely implausible.
On the other hand, America is China's best customer and if the dollar fell sharply or consumer spending reduced even more severely than it has already done, this would hit Chinese exports and increase unemployment in China, which is already a significant problem. It is in both parties' interests to manage the situation. The wider picture, many believe, is a long economic decline in the West as the East develops markets closer to its home, but at this stage everyone will prefer an ebbing tide to a tsunami in reverse.
Perhaps we should instead expect a slowing in the rate at which U.S. debt to China is increasing; and maybe an increasing reluctance on the part of the Chinese to purchase new Treasuries when the old ones mature.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
A selloff would put pressure on the U.S. to raise interest rates, and this could have a domino effect in other countries. Higher interest rates make businesses' finance tougher, as well as hitting their customers' disposable income and therefore reducing demand for goods and services. So a crisis of faith in America's ability to repay its debts, and to maintain the exchange value of the dollar, could plunge the world economy back into recession. The investment outlook in this scenario would not be positive.
Denninger is a long-standing Cassandra on the U.S. economy, but he has a fairly sizeable following in the American personal investment community and despite his tendency to express himself in stark terms, his views and information should not be lightly dismissed.
A further reason to take him seriously is what has been happening between China and its U.S. debtors. It's been said some time ago, that China has been selling the debt of U.S. States and corporations in favour of U.S. Treasuries, because the latter are fully backed by the American Government. In retrospect, this seems to have been a very prudent move, since a number of U.S. States are now having significant difficulty in balancing their budgets, owing to a shrinking tax income and rising bills for unemployment benefit. It's understood that China has also been selling longer-term Treasuries to buy shorter-dated ones, because the latter offer an earlier exit should America's credit rating and currency weaken. So the notion that China might suddenly need or want to sell off Treasuries, is not entirely implausible.
On the other hand, America is China's best customer and if the dollar fell sharply or consumer spending reduced even more severely than it has already done, this would hit Chinese exports and increase unemployment in China, which is already a significant problem. It is in both parties' interests to manage the situation. The wider picture, many believe, is a long economic decline in the West as the East develops markets closer to its home, but at this stage everyone will prefer an ebbing tide to a tsunami in reverse.
Perhaps we should instead expect a slowing in the rate at which U.S. debt to China is increasing; and maybe an increasing reluctance on the part of the Chinese to purchase new Treasuries when the old ones mature.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Tuesday, December 01, 2009
India: reasons to be cheerful?
A briefing from SimplyBiz (the IFA support company) gives reasons why India may be an economy worth watching in years to come.
The demographics are in favour (half are under 25), the system is entrepreneurial and there is a large class of well-educated people.
The country has not yet adequately developed the infrastructure to support a booming industrial economy, but the government intends to spend $500 billion in the next five years to remedy this - and half a trillion dollars buys a lot more in India.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
The demographics are in favour (half are under 25), the system is entrepreneurial and there is a large class of well-educated people.
The country has not yet adequately developed the infrastructure to support a booming industrial economy, but the government intends to spend $500 billion in the next five years to remedy this - and half a trillion dollars buys a lot more in India.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Is inflation on the way?
According to one commentator I follow, Japan has been pumping extra money into its system, seemingly with a view to making its currency weaker, which would make its exports cheaper and so stimulate extra demand.
If that was the plan, the first part of it seems to have worked, except in weakening the Yen vs the US dollar. The dollar went lower on world currency exchanges and Mr Pollock's reading is that the markets have started to wonder whether America will seek to do the same as Japan.
Pollock compares this situation to the beggar-thy-neighbour system between the two World Wars, when countries imposed tariffs on each other's exports to protect their own industries. Devaluing currencies was not so easy when they were backed by gold; now, nations can more easily expand their money supply to create inflation.
If other countries follow suit*, then the relationship of money to real things will alter and people will look to get rid of cash and buy things that will hold their value. Perhaps this is one of the factors behind the rise in the price of gold, but there's lots of other ways we could invest our money. Few are guaranteed to counter inflation, except products like National Savings Index-Linked Certificates; and even there we have the question of how the Government calculates the rate of inflation.
It is unsettling for the ordinary saver. Just when it seemed that "cash is king" and the prudent, frugal person was going to be rewarded by seeing prices drop (look at houses, cars, cruises, TVs and computers etc), the value of his/her money may be hit by inflation once again.
UPDATE (1st December):
* North Korea has just done something far worse. It has replaced the old currency with a new one, but only allowing a certain amount of the old to be changed into the new - effectively, a robbery of the larger saver.
UPDATE (4th December):
Koreans burning old money in protest, Korean government easing restrictions on converting currency (BBC) - (hat-tip to Credit Writedowns)
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
If that was the plan, the first part of it seems to have worked, except in weakening the Yen vs the US dollar. The dollar went lower on world currency exchanges and Mr Pollock's reading is that the markets have started to wonder whether America will seek to do the same as Japan.
Pollock compares this situation to the beggar-thy-neighbour system between the two World Wars, when countries imposed tariffs on each other's exports to protect their own industries. Devaluing currencies was not so easy when they were backed by gold; now, nations can more easily expand their money supply to create inflation.
If other countries follow suit*, then the relationship of money to real things will alter and people will look to get rid of cash and buy things that will hold their value. Perhaps this is one of the factors behind the rise in the price of gold, but there's lots of other ways we could invest our money. Few are guaranteed to counter inflation, except products like National Savings Index-Linked Certificates; and even there we have the question of how the Government calculates the rate of inflation.
It is unsettling for the ordinary saver. Just when it seemed that "cash is king" and the prudent, frugal person was going to be rewarded by seeing prices drop (look at houses, cars, cruises, TVs and computers etc), the value of his/her money may be hit by inflation once again.
UPDATE (1st December):
* North Korea has just done something far worse. It has replaced the old currency with a new one, but only allowing a certain amount of the old to be changed into the new - effectively, a robbery of the larger saver.
UPDATE (4th December):
Koreans burning old money in protest, Korean government easing restrictions on converting currency (BBC) - (hat-tip to Credit Writedowns)
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
Sunday, November 29, 2009
Vent for the Day
In a discussion thread was this gem. What do you think?
'Innovation requires imagination, which requires an atmosphere where people can do that freely. That's why freedom is always better and leads to the "great ideas."
It's the idea that's important. Whoever has the idea can always get the geeks to actually create it.'
That's nice. Have someone else do all of the work, and get none of the credit. That's why the US and UK are overrun with technical talent.
'Innovation requires imagination, which requires an atmosphere where people can do that freely. That's why freedom is always better and leads to the "great ideas."
It's the idea that's important. Whoever has the idea can always get the geeks to actually create it.'
That's nice. Have someone else do all of the work, and get none of the credit. That's why the US and UK are overrun with technical talent.
Charitable giving - is it cost-effective?
As money gets tighter, charities have to compete more for what we are able to give them. How do we know that our contribution is being used effectively?
In the United States, you can log onto Charity Navigator and get financial information and ratings on U.S. charities, but unfortunately there is no sister site for the UK, so we have to check our charities with other sources.
For example, let's take a worthy-sounding UK-based cause called the World Children's Fund. This is attractively presented on its own website, and I have had several slick mailshot approaches from them which made me feel emotionally coerced. But are they value for money? I could look them up on Charity Choice, which says "WCF ... has minimal overhead costs". However, this may merely be a wording supplied by WCF itself, so we turn to the accounts submitted to the Charity Commission, where it transpires that 29.1% of the funds raised have been spent on "Generating voluntary income". Compare that with the British Red Cross Society, which only spent 13.7% on the same category.
But that's only one way to do the figures. Calculating the proportion that goes on "charitable spending", I see that WCF manages 70% as against the Red Cross' 76%; and the Red Cross is a massively bigger outfit, so it might benefit from economies of scale. Yet according to Charity Navigator, Action Aid International achieves 84.9% for "program expenses", despite having a turnover less than half that of WCF's.
Well, we get down to complexities of accounting again. How many hands touch the money as it goes past, how much sticks to their fingers, how much ends up where it's needed? How detailed, transparent, honest are the accounts?
And it also gets philosophical: what are the needs you're trying to address? How well are you succeeding? And don't the people involved in running the charity have needs, too? Should they work for nothing?
UK-based Intelligent Giving tries to give a subtler approach to weighing up the performance of charities, and how well they report on what they're doing - see here for their judgment on the Red Cross, for example. Intelligent Giving also features a page listing other evaluation sites and foundations that screen beneficiaries and projects.
New Philanthropy Capital is another UK-based organisation researching charities; and their blog argues that we can be too easily diverted by expenditure issues and should re-focus on what we are trying to achieve.
In short, think about and research your giving carefully, as you would do with other important spending.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
In the United States, you can log onto Charity Navigator and get financial information and ratings on U.S. charities, but unfortunately there is no sister site for the UK, so we have to check our charities with other sources.
For example, let's take a worthy-sounding UK-based cause called the World Children's Fund. This is attractively presented on its own website, and I have had several slick mailshot approaches from them which made me feel emotionally coerced. But are they value for money? I could look them up on Charity Choice, which says "WCF ... has minimal overhead costs". However, this may merely be a wording supplied by WCF itself, so we turn to the accounts submitted to the Charity Commission, where it transpires that 29.1% of the funds raised have been spent on "Generating voluntary income". Compare that with the British Red Cross Society, which only spent 13.7% on the same category.
But that's only one way to do the figures. Calculating the proportion that goes on "charitable spending", I see that WCF manages 70% as against the Red Cross' 76%; and the Red Cross is a massively bigger outfit, so it might benefit from economies of scale. Yet according to Charity Navigator, Action Aid International achieves 84.9% for "program expenses", despite having a turnover less than half that of WCF's.
Well, we get down to complexities of accounting again. How many hands touch the money as it goes past, how much sticks to their fingers, how much ends up where it's needed? How detailed, transparent, honest are the accounts?
And it also gets philosophical: what are the needs you're trying to address? How well are you succeeding? And don't the people involved in running the charity have needs, too? Should they work for nothing?
UK-based Intelligent Giving tries to give a subtler approach to weighing up the performance of charities, and how well they report on what they're doing - see here for their judgment on the Red Cross, for example. Intelligent Giving also features a page listing other evaluation sites and foundations that screen beneficiaries and projects.
New Philanthropy Capital is another UK-based organisation researching charities; and their blog argues that we can be too easily diverted by expenditure issues and should re-focus on what we are trying to achieve.
In short, think about and research your giving carefully, as you would do with other important spending.
DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.
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