Sunday, May 20, 2007
ETFs vs Mutual Funds (aka unit trusts, OEICS etc)
The Motley Fool challenges the view that Exchange Traded Funds are preferable to conventional collective investments.
Chinese business can suffer, too
An article in WTOP news says that some areas of Chinese industry are surprisingly vulnerable to the currency exchange rate:
A rise of 10 percent in the yuan could lead to the loss of 5.5 million jobs in China, according to a report by the Chinese central bank. It said companies hardest hit would be those that make textiles, furniture, shoes and toys for export.
"If the yuan rises by another 5 percent, our profits will be totally wiped out," said Li Shaoxiong, deputy general manager of the Fujian Ala Shoe Co., which sold half its 2006 output of 6 million pairs of athletic shoes to American retailers.
Beijing is counting on such labor-intensive light manufacturers to create millions of new jobs. Even though its bustling economy is expected to grow by more than 10 percent this year, a big share of that is in heavier manufacturing and other industries that create fewer jobs.
Perhaps China will take the view that it can tolerate a rise in foreign-trade-related unemployment while it continues to amass capital; as the East gets richer, it will eventually generate its own demand for the products of light industry.
A rise of 10 percent in the yuan could lead to the loss of 5.5 million jobs in China, according to a report by the Chinese central bank. It said companies hardest hit would be those that make textiles, furniture, shoes and toys for export.
"If the yuan rises by another 5 percent, our profits will be totally wiped out," said Li Shaoxiong, deputy general manager of the Fujian Ala Shoe Co., which sold half its 2006 output of 6 million pairs of athletic shoes to American retailers.
Beijing is counting on such labor-intensive light manufacturers to create millions of new jobs. Even though its bustling economy is expected to grow by more than 10 percent this year, a big share of that is in heavier manufacturing and other industries that create fewer jobs.
Perhaps China will take the view that it can tolerate a rise in foreign-trade-related unemployment while it continues to amass capital; as the East gets richer, it will eventually generate its own demand for the products of light industry.
America's debt economy
As part of a longer item explaining why China is becoming the world's most important economy, Puru Saxena crisply summarises America's position:
"...the U.S. is the largest debtor nation the world has ever seen, its debt to GDP ratio is over 400%, it has a negative personal savings rate, its currency is overvalued and its society is heavily dependent on consuming cheap, imported goods."
If you, personally, owed 4 times your annual income and were now supplementing your income by further borrowing ("negative savings rate"), you'd look for debt counselling.
Add this to Jim Willie's comments about the export of jobs, and you can see why The Mogambo Guru is raving in his latest letter.
"...the U.S. is the largest debtor nation the world has ever seen, its debt to GDP ratio is over 400%, it has a negative personal savings rate, its currency is overvalued and its society is heavily dependent on consuming cheap, imported goods."
If you, personally, owed 4 times your annual income and were now supplementing your income by further borrowing ("negative savings rate"), you'd look for debt counselling.
Add this to Jim Willie's comments about the export of jobs, and you can see why The Mogambo Guru is raving in his latest letter.
Unemployment - Permanent
Here's a stark view on unemployment from Jim Willie CB, "The Golden Jackass" (I've bold-typed key phrases):
"LABOR ABSOLUTE DISADVANTAGE
"Much hubbub has been made of "comparative advantage" and how the United States benefits from round after round of creative destruction. The hollow message has that in free trade, both sides win, and where a job is lost, new jobs are created. Few if any advantages can be identified in the present framework, whereby lost jobs seem to be replaced mainly by debts inside the USA. Economists badly misinterpret the labor market here in the USA. They incorrectly label the delay in domestic job creation as "short-run friction," when the entire business cycle clearly has been altered, perhaps permanently broken. David Ricardo's doctrines, outlined in 1817, are misunderstood. The US has an absolute disadvantage on labor costs, across the board, which affects manufacturing, service, and more. His principles are discussed in today's light in the May issue, and shown why wealth is lost in the USA and gained abroad.
"As the work of John Maynard Keynes has been misapplied on federal stimulus, so now the work of David Ricardo is being misinterpreted on exported labor. Expect the entire topic of job export and its misconstrued benefits to become a raging explosive issue."
British readers might ask, how is it different in the UK? And where is the sleuth of British bears, growling their warnings?
"LABOR ABSOLUTE DISADVANTAGE
"Much hubbub has been made of "comparative advantage" and how the United States benefits from round after round of creative destruction. The hollow message has that in free trade, both sides win, and where a job is lost, new jobs are created. Few if any advantages can be identified in the present framework, whereby lost jobs seem to be replaced mainly by debts inside the USA. Economists badly misinterpret the labor market here in the USA. They incorrectly label the delay in domestic job creation as "short-run friction," when the entire business cycle clearly has been altered, perhaps permanently broken. David Ricardo's doctrines, outlined in 1817, are misunderstood. The US has an absolute disadvantage on labor costs, across the board, which affects manufacturing, service, and more. His principles are discussed in today's light in the May issue, and shown why wealth is lost in the USA and gained abroad.
"As the work of John Maynard Keynes has been misapplied on federal stimulus, so now the work of David Ricardo is being misinterpreted on exported labor. Expect the entire topic of job export and its misconstrued benefits to become a raging explosive issue."
British readers might ask, how is it different in the UK? And where is the sleuth of British bears, growling their warnings?
Saturday, May 19, 2007
End of the dollar bill will mean the end of the dollar
Here's an article about the introduction of a dollar coin. Bad idea. We have a pound coin in the UK. A friend remarked on this to his wife when it came in; she replied, "It's so people will expect less."
Richard Daughty worries about absence of increased debt!
The Mogambo Guru worried yesterday about a lack of increase in the money supply - maybe a first for him! But as he explains, in an inflation-sustained stockmarket it's a bit like a halt in the flow of blood round your system.
More bears - one British, one Chinese
Two more bears worry about the current state of the markets: a fund manager from Fidelity is concerned about easy credit terms and poor investment value; Asia's richest man is nervous about the Chinese stockmarket (up 85% so far this year).
Michael Panzner warns again of systemic risk
Michael Panzner continues to warn of a possible financial earthquake. His 17 May article in Seeking Alpha (see my link list) quotes the NY Fed Reserve President as saying "consolidation of global financial firms, increased leverage and increased complacency all have raised the risk of a systemic shock" - what I'd call the BBC syndrome (big, borrowed heavily and complacent about system risk).
Bigness is no guarantee of security, rather the reverse - think of hedge fund Long Term Capital Management, or indeed the Titanic; on borrowing, the bears have warned until they are hoarse; and complacency has been fostered by increases in the money supply.
Perhaps the complacency is the most dangerous part. People like Michael Panzner and Peter Schiff are like the architect in the 1974 movie "Towering Inferno", worried about a potential disaster because of bad wiring; but the warnings are ignored because there's extra profit in trimming security.
It's noteworthy that the Fed Reserve President, Timothy Geithner, was addressing his remarks to a conference on derivatives, which according to Mr Panzner are another source of instability in the world economy. Derivatives use highly complex mathematical tools, but as far as I can make out their purpose is simple: to see how near to disaster you can go without crossing the line. In other words, trimming security.
Bigness is no guarantee of security, rather the reverse - think of hedge fund Long Term Capital Management, or indeed the Titanic; on borrowing, the bears have warned until they are hoarse; and complacency has been fostered by increases in the money supply.
Perhaps the complacency is the most dangerous part. People like Michael Panzner and Peter Schiff are like the architect in the 1974 movie "Towering Inferno", worried about a potential disaster because of bad wiring; but the warnings are ignored because there's extra profit in trimming security.
It's noteworthy that the Fed Reserve President, Timothy Geithner, was addressing his remarks to a conference on derivatives, which according to Mr Panzner are another source of instability in the world economy. Derivatives use highly complex mathematical tools, but as far as I can make out their purpose is simple: to see how near to disaster you can go without crossing the line. In other words, trimming security.
China announces changes to interest and exchange rates
As I said on 16th May. Though it didn't take a genius to foresee: the Chinese are careful to flag up their intentions so as not to scare anyone. The interest rate increase means the yuan/renminbi will rise against the dollar.
The other move looks like part of a longer-term strategy: the band within which the yuan moves against the dollar is to widen from 0.3% to 0.5% (maximum per day - over time, unlimited), presumably partly to accommodate appreciation of the Chinese currency in response to the interest rate. This may please America, as a lower dollar will reduce the price advantage of Chinese good.
But I think it's also signalling the stage at which one partner tapes their favourite music, before they pack their bags and leave home for good. Having more flexibility in the dollar-yuan exchange may suit China's bigger plan, to move away from dependence on the US market.
Goodbye dollar, hello Euro?
The other move looks like part of a longer-term strategy: the band within which the yuan moves against the dollar is to widen from 0.3% to 0.5% (maximum per day - over time, unlimited), presumably partly to accommodate appreciation of the Chinese currency in response to the interest rate. This may please America, as a lower dollar will reduce the price advantage of Chinese good.
But I think it's also signalling the stage at which one partner tapes their favourite music, before they pack their bags and leave home for good. Having more flexibility in the dollar-yuan exchange may suit China's bigger plan, to move away from dependence on the US market.
Goodbye dollar, hello Euro?
Richard Daughty worries about absence of increased debt!
The Mogambo Guru worried yesterday about a lack of increase in the money supply - maybe a first for him! But as he explains, in an inflation-sustained stockmarket it's a bit like a halt in the flow of blood round your system.
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Michael Panzner warns again of systemic risk
Michael Panzner continues to warn of a possible financial earthquake. His 17 May article in Seeking Alpha (see my link list) quotes the NY Fed Reserve President as saying "consolidation of global financial firms, increased leverage and increased complacency all have raised the risk of a systemic shock" - what I'd call the BBC syndrome (big, borrowed heavily and complacent about system risk).
Bigness is no guarantee of security, rather the reverse - think of hedge fund Long Term Capital Management, or indeed the Titanic; on borrowing, the bears have warned until they are hoarse; and complacency has been fostered by increases in the money supply.
Perhaps the complacency is the most dangerous part. People like Michael Panzner and Peter Schiff are like the architect in the 1974 movie "Towering Inferno", worried about a potential disaster because of bad wiring; but the warnings are ignored because there's extra profit in trimming security.
It's noteworthy that the Fed Reserve President, Timothy Geithner, was addressing his remarks to a conference on derivatives, which according to Mr Panzner are another source of instability in the world economy. Derivatives use highly complex mathematical tools, but as far as I can make out their purpose is simple: to see how near to disaster you can go without crossing the line. In other words, trimming security. A
ll original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Bigness is no guarantee of security, rather the reverse - think of hedge fund Long Term Capital Management, or indeed the Titanic; on borrowing, the bears have warned until they are hoarse; and complacency has been fostered by increases in the money supply.
Perhaps the complacency is the most dangerous part. People like Michael Panzner and Peter Schiff are like the architect in the 1974 movie "Towering Inferno", worried about a potential disaster because of bad wiring; but the warnings are ignored because there's extra profit in trimming security.
It's noteworthy that the Fed Reserve President, Timothy Geithner, was addressing his remarks to a conference on derivatives, which according to Mr Panzner are another source of instability in the world economy. Derivatives use highly complex mathematical tools, but as far as I can make out their purpose is simple: to see how near to disaster you can go without crossing the line. In other words, trimming security. A
ll original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
China: a turning point?
Please read this news article, about US-Chinese economic relations. It's a rehash of an essay by China's Vice Premier Wu Yi in yesterday's Wall Street Journal. To me, the very polite tone and careful emphasis on mutual benefit make it clear who's wearing the trousers now. The subtler they are, the more they mean it.
Listen with your inner ear to the statement "Attempts to politicize trade issues should be resisted," bearing in mind who is making it. I sense some kind of turning point. If you play the oriental game Go, the term is "sente", meaning that the initiative has passed to the other player.
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Listen with your inner ear to the statement "Attempts to politicize trade issues should be resisted," bearing in mind who is making it. I sense some kind of turning point. If you play the oriental game Go, the term is "sente", meaning that the initiative has passed to the other player.
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
What is Alan Greenspan doing?
Recently, ex-Federal Reserve Chairman Alan Greenspan has been sounding warnings about the US economy and is now aware that his back-seat driver comments may affect the market (see end of this article). It must be irritating for Ben Bernanke to deal with a boat-rocker whom some blame for creating the problems that Ben now faces.
And what is Mr Greenspan now doing? One of his new roles is as an adviser to investment managers PIMCO - see here for their latest US report. The style of the report is an uncomfortable combination of stuffy and jazzy, but the substance is interesting. Here's a few extracted phrases:
Currently there's a "virtuous circle favoring capital at the expense of labor", which only "a global financial bubble popping of sorts, an accelerated decline of U.S. housing in the short run, or a U.S.-led trade policy reversal that could precipitate counter-attacks from Asian exporters" could stop;
there are "inflationary pressures" in the US and an "asset bubble";
if a housing slump hits the American consumer economy, "anti-trade [i.e. protectionist] legislation may or may not become a reality";
"The emphasis on emerging market currencies rather obviously suggests relative weakness of the U.S. dollar. We continue to believe that U.S. growth will descend towards the lower quartile of countries within a broad global composite. Such U.S. growth, despite relatively favorable demographic labor force trends spiked by immigration, will suffer due to reduced U.S. consumption and the need for higher savings. Even in the face of resistance by Chinese authorities vis-à-vis the Yuan and the Japanese via artificially low interest rates, this lower growth speaks to a weaker dollar and lower relative asset price appreciation in comparison to the rest of the world. PIMCO portfolios will therefore likely feature increasing international diversification in foreign currency terms.";
PIMCO thinks that "sustainable global growth with perhaps an early cyclical slowdown appears to be the likeliest outcome. Those who “own” this growth as opposed to those who lend to it will benefit."
Not hard to boil this down. But potentially rewarding for an alert and adventurous investor. And Mr Greenspan the poacher will act as your gamekeeper, if you go with PIMCO.
And what is Mr Greenspan now doing? One of his new roles is as an adviser to investment managers PIMCO - see here for their latest US report. The style of the report is an uncomfortable combination of stuffy and jazzy, but the substance is interesting. Here's a few extracted phrases:
Currently there's a "virtuous circle favoring capital at the expense of labor", which only "a global financial bubble popping of sorts, an accelerated decline of U.S. housing in the short run, or a U.S.-led trade policy reversal that could precipitate counter-attacks from Asian exporters" could stop;
there are "inflationary pressures" in the US and an "asset bubble";
if a housing slump hits the American consumer economy, "anti-trade [i.e. protectionist] legislation may or may not become a reality";
"The emphasis on emerging market currencies rather obviously suggests relative weakness of the U.S. dollar. We continue to believe that U.S. growth will descend towards the lower quartile of countries within a broad global composite. Such U.S. growth, despite relatively favorable demographic labor force trends spiked by immigration, will suffer due to reduced U.S. consumption and the need for higher savings. Even in the face of resistance by Chinese authorities vis-à-vis the Yuan and the Japanese via artificially low interest rates, this lower growth speaks to a weaker dollar and lower relative asset price appreciation in comparison to the rest of the world. PIMCO portfolios will therefore likely feature increasing international diversification in foreign currency terms.";
PIMCO thinks that "sustainable global growth with perhaps an early cyclical slowdown appears to be the likeliest outcome. Those who “own” this growth as opposed to those who lend to it will benefit."
Not hard to boil this down. But potentially rewarding for an alert and adventurous investor. And Mr Greenspan the poacher will act as your gamekeeper, if you go with PIMCO.
China: a turning point?
Please read this news article, about US-Chinese economic relations. It's a rehash of an essay by China's Vice Premier Wu Yi in yesterday's Wall Street Journal. To me, the very polite tone and careful emphasis on mutual benefit make it clear who's wearing the trousers now. The subtler they are, the more they mean it.
Listen with your inner ear to the statement "Attempts to politicize trade issues should be resisted," bearing in mind who is making it. I sense some kind of turning point. If you play the oriental game Go, the term is "sente", meaning that the initiative has passed to the other player.
Listen with your inner ear to the statement "Attempts to politicize trade issues should be resisted," bearing in mind who is making it. I sense some kind of turning point. If you play the oriental game Go, the term is "sente", meaning that the initiative has passed to the other player.
Friday, May 18, 2007
The Dollar vs the Euro
Adrian Ash in the Daily Reckoning Australia: even if the Euro is capable of replacing the US dollar as a trading currency, it has similar problems!
Thursday, May 17, 2007
China to watch US interest rate and exchange policies
... and from the other side, a thoughtful opinion by Zhang Ming in today's Chinese People's Daily online edition. It notes that changes in the US interest rate might have to be matched by China, but another option is for the US to devalue the dollar. Should the latter occur, it would affect flows of capital between the countries, but (in the writer's view) not so much the Chinese stockmarket, which is mainly powered by domestic investment.
Martin Weiss: bull in a China shop
Martin Weiss' 14 May newsletter reminds us of the big picture: wealth transfer from the US to China - and the opportunities for investors.
Read this: Maggie Mahar at TPM Cafe
A good article by Maggie Mahar at cybersheet TPM Cafe - comments about Warren Buffett, David Tice, market bubbles and their aftermath.
Wednesday, May 16, 2007
Yuan to rise soon?
China is giving more signals of its plans to let the Yuan/Renminbi rise.
Premier Wen referred to "improving the Renminbi exchange rate mechanism, giving greater scope to the role of the market and introducing greater interest rate flexibility".
Premier Wen referred to "improving the Renminbi exchange rate mechanism, giving greater scope to the role of the market and introducing greater interest rate flexibility".
The Kondratieff Cycle
Some investment analysts are "chartists" - they try to predict the future short-term movement of the markets, using patterns they think they've seen in the past. There are longer-term patterns too: we commonly talk of a "business cycle" of say 8 or 10 years.
Could there be really long cycles? Nicolai Kondratieff (or Kondratiev) (see Wikipedia article) thought so. His wave takes around 50 years and predicts decades of booms and depressions. His theory still excites professional investors today - see this article about Marc Faber, and Shane Oliver at AMP.
Of course, the question is how exactly to fit the pattern to our present situation. There is a nice graphic presentation here, showing past data and extrapolating to 2010. But look at other sites, too, like this one from 1998 - here the analysis suggests we have already hit the bottom.
Maybe the answer is that such patterns do exist, but the turning points are impossible to predict, so chartists stretch the waves. For example, you'll see in the second chart above (about technology, related to Kondratieff), that the first 3 cycles are set at 50 years, and the fourth at 40.
Could there be really long cycles? Nicolai Kondratieff (or Kondratiev) (see Wikipedia article) thought so. His wave takes around 50 years and predicts decades of booms and depressions. His theory still excites professional investors today - see this article about Marc Faber, and Shane Oliver at AMP.
Of course, the question is how exactly to fit the pattern to our present situation. There is a nice graphic presentation here, showing past data and extrapolating to 2010. But look at other sites, too, like this one from 1998 - here the analysis suggests we have already hit the bottom.
Maybe the answer is that such patterns do exist, but the turning points are impossible to predict, so chartists stretch the waves. For example, you'll see in the second chart above (about technology, related to Kondratieff), that the first 3 cycles are set at 50 years, and the fourth at 40.
Sometimes an unexpected dramatic event starts the change, e.g the murder of Archduke Franz Ferdinand in 1914. And British history would have been very different if Guy Fawkes' 1605 plot to blow up King and Parliament hadn't been leaked. So you can't get the timing perfect.
But you can prepare. The two books recently reviewed on this blog explain why we should worry about the state of the US economy (and the UK has similar problems, maybe on a different scale). You don't need to know when the fire will start, as long as you've planned how to leave the building in an emergency.
All original material is copyright of its author. Fair use permitted. Contact via comment. 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; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
But you can prepare. The two books recently reviewed on this blog explain why we should worry about the state of the US economy (and the UK has similar problems, maybe on a different scale). You don't need to know when the fire will start, as long as you've planned how to leave the building in an emergency.
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