As a person from India, I must say that potectionism for USA makes sense. Its bad for India, but good for USA for a couple of decades at least.
With free trade, the poor and less able American worker will be reduced to 3rd world standards. The only way to keep him rich like he is now is through protectionism.
Without barriers, people will be paid according to ability. Some 2 million Indians will earn well like top technocrats of USA. Some 20 million Chinese will too - in manufacturing jobs they will take away from Japan and others. But 100 million average Americans who dont have brains to do real quality work will lose their standard of living - they will earn minimum wage and will have no hope.
If there is justice, these dumb Americans deserve to live in their level of (in) competence. If there is justice, top Indian technocrats and hard working Chinese factory workers will get their due in salary, reaching developed world standards.
But 100 million Americans will lose their standard of living for this justice.
It would be stupid of the American govt not to protect them, thinking only of abstract justice - and I dont think US will stay away from protectionism, they are too smart for that. They know which side of their bread is buttered.
Friday, February 6, 2009
Thursday, February 5, 2009
Musings of a China Bear
Chinese growth was more extensively investment driven than people realise.
A lot of Chinese capital investment will have to be written down - that has not happened yet. It is my belief that the exposure of overinvestment in China and loan defaults there, will herald the nadir of the current economic and stock market downturn.
If the Chinese govt tries to cover up bad loans, it will probably evaporate the 2 trillion dollars they have accumulated. Not all of that is a trade surplus, a big chunk is dollar investment made in China after conversion to local currency. There will be flight of capital out of China in such a situation.
Chinese inductry is also heavily energy dependent. If they resume their growth path, it will push up energy prices with sudden spike in oil prices, which will ensure that the growth in China and everywhere else is nipped in the bud. A growing Chinese economy is synonimous with rising oil prices - no wonder Buffet invested in energy recently. Unfortunately a standstill Chinese economy is also bad news because Taiwan, Japan and USA along with other world banks have made heavy investments in China and their investment returns will suffer.
China is between a rock and a hard place. It cannot grow anymore. Its choice of being the manufacturing factory for the whole world means it is dependent on other people buying what it produces, to push its population from agriculture (under/un-employment, basically) to manufacturing jobs. This model cannot employ more than 4-500 million people. It is already close to this level.
Any further increase in factory employment will mean taking unacceptable levels of jobs away from US and Europe. It also requires heavy investment in training and high tech manufacture - that means high wage jobs, not going to be ceded so easily by USA and Europe. China will have no cost advantage in this realm - training a high tech worker will cost the same in US and China, so why move to China.
The next 20 years are going to be hard for China. The easy growth they have witnessed will now be more difficult to come by. They will have to be a lot smarter in producing what people want, and things people cannot do without. Most of the gadgets they currently make, are unfortunately the first useless expense that people are going to cut back.
The whole world is switching to a more sustainable economic model, where there will be less waste. Thats the only way 3 billion people in third world countries can become globalised - the earth cannot sustain 1 billion Indians, 1 billion Chinese and 1 billion from other countries in an American style of life. America itself will move away from it, this recession will force the issue. Life style will change in unprecedented ways. Old ways of analysis will not be valid anymore in the new economy.
Most of the investment made in China assumes that the current lifestyle will sustain for 20 more years. They have made massive infrastructure investments on this assumption. These investments are never going to bear fruit - people are not going down this road anymore - after they just finished building the road! :-)
So all those investments are down the toilet. So far, only their stockmarket has tanked some 60% from the highs. Where is the rest of the bad news?
It is my belief that the Chinese are keeping things quiet so that they dont precipitate a crisis like what happened when Lehman went under. They are shit scared, but are playing their cards close to their chest. The Chinese have mastered the capitalist game as well as anybody could - and they know that one whiff of failure will mean massive flight of capital, since people will want to cut their losses.
Are you kidding me that Chinese banks made only good loans and that they will continue to be services. No way!
Capitalism doesnt work that way. After the binge comes the hangover. A poker face is not going to hide the massive splitting headache in the Chinese economy.
I am a China bear. But I am also worried. China is likely to respond to any really bad downturn in their economy by attacking their neighbors. They may figure that the only way to give employment to their millions is as cheap cannon fodder - the same way USA got out of the depression!
I thought a world recession would be caused by spiking oil prices. I was wrong - bad loans did that.
A combination of bad loans and spiking oil prices can still be the triggering factor for a really bad Chinese recession. which it would export to the world.
Be Foolish, not foolish. The writing is on the wall
As posted on The Motley Fool
A lot of Chinese capital investment will have to be written down - that has not happened yet. It is my belief that the exposure of overinvestment in China and loan defaults there, will herald the nadir of the current economic and stock market downturn.
If the Chinese govt tries to cover up bad loans, it will probably evaporate the 2 trillion dollars they have accumulated. Not all of that is a trade surplus, a big chunk is dollar investment made in China after conversion to local currency. There will be flight of capital out of China in such a situation.
Chinese inductry is also heavily energy dependent. If they resume their growth path, it will push up energy prices with sudden spike in oil prices, which will ensure that the growth in China and everywhere else is nipped in the bud. A growing Chinese economy is synonimous with rising oil prices - no wonder Buffet invested in energy recently. Unfortunately a standstill Chinese economy is also bad news because Taiwan, Japan and USA along with other world banks have made heavy investments in China and their investment returns will suffer.
China is between a rock and a hard place. It cannot grow anymore. Its choice of being the manufacturing factory for the whole world means it is dependent on other people buying what it produces, to push its population from agriculture (under/un-employment, basically) to manufacturing jobs. This model cannot employ more than 4-500 million people. It is already close to this level.
Any further increase in factory employment will mean taking unacceptable levels of jobs away from US and Europe. It also requires heavy investment in training and high tech manufacture - that means high wage jobs, not going to be ceded so easily by USA and Europe. China will have no cost advantage in this realm - training a high tech worker will cost the same in US and China, so why move to China.
The next 20 years are going to be hard for China. The easy growth they have witnessed will now be more difficult to come by. They will have to be a lot smarter in producing what people want, and things people cannot do without. Most of the gadgets they currently make, are unfortunately the first useless expense that people are going to cut back.
The whole world is switching to a more sustainable economic model, where there will be less waste. Thats the only way 3 billion people in third world countries can become globalised - the earth cannot sustain 1 billion Indians, 1 billion Chinese and 1 billion from other countries in an American style of life. America itself will move away from it, this recession will force the issue. Life style will change in unprecedented ways. Old ways of analysis will not be valid anymore in the new economy.
Most of the investment made in China assumes that the current lifestyle will sustain for 20 more years. They have made massive infrastructure investments on this assumption. These investments are never going to bear fruit - people are not going down this road anymore - after they just finished building the road! :-)
So all those investments are down the toilet. So far, only their stockmarket has tanked some 60% from the highs. Where is the rest of the bad news?
It is my belief that the Chinese are keeping things quiet so that they dont precipitate a crisis like what happened when Lehman went under. They are shit scared, but are playing their cards close to their chest. The Chinese have mastered the capitalist game as well as anybody could - and they know that one whiff of failure will mean massive flight of capital, since people will want to cut their losses.
Are you kidding me that Chinese banks made only good loans and that they will continue to be services. No way!
Capitalism doesnt work that way. After the binge comes the hangover. A poker face is not going to hide the massive splitting headache in the Chinese economy.
I am a China bear. But I am also worried. China is likely to respond to any really bad downturn in their economy by attacking their neighbors. They may figure that the only way to give employment to their millions is as cheap cannon fodder - the same way USA got out of the depression!
I thought a world recession would be caused by spiking oil prices. I was wrong - bad loans did that.
A combination of bad loans and spiking oil prices can still be the triggering factor for a really bad Chinese recession. which it would export to the world.
Be Foolish, not foolish. The writing is on the wall
As posted on The Motley Fool
Tuesday, February 3, 2009
On Market Timing
I have realised that it is easy to sell near the summit of a bull market, when stock prices look ridiculously high.
On the other hand, it is very difficult to judge when we have reached a bottom on a market crash. Having successfully market timed, sitting on cash, you keep wondering - should I buy now? Is it a fantastic opportunity? What if the plunge drops and a rise starts?
But each time you trickle in some money and watch the markets crush it to half the purchase price, you start back in fear - am I getting in too early? Am I going to destroy all the benefits of a successful market timing? Is the market going to swoon for three years and go to half the present value, which would be the real time to buy? Is a future market fall worth waiting for? How long should I wait?
I have no answers to these questions. I have only learned that I have much to learn.
On the other hand, it is very difficult to judge when we have reached a bottom on a market crash. Having successfully market timed, sitting on cash, you keep wondering - should I buy now? Is it a fantastic opportunity? What if the plunge drops and a rise starts?
But each time you trickle in some money and watch the markets crush it to half the purchase price, you start back in fear - am I getting in too early? Am I going to destroy all the benefits of a successful market timing? Is the market going to swoon for three years and go to half the present value, which would be the real time to buy? Is a future market fall worth waiting for? How long should I wait?
I have no answers to these questions. I have only learned that I have much to learn.
Subscribe to:
Posts (Atom)