On the cusp of saying goodbye to 33 (years of crap), have the nasty feeling that the long postponed and much delayed other half of the 'w' might well be on us in Asia soon. QE2, like its famed ocean crossing relative, looks to puff more bubbles and perhaps prod us ever nearer where froth spilleth over. Wonder who blinks first. Cheers, nice to know my "speculative guess" is as pretty as my mood.

The book everyone should read?

How to outrun the crowd - soon to be released!

Tags: bubbles

Agree with much of the points made in Pesek's article. Skies with a funky yellow smog is as much a memory of shanghai as it is of beijing. However, after reading quite a bit of the less than optimistic speculation on the future directions China could take and the doomsday placard waving crowd on the blogsphere trail, one wonders if this could be the middle path for the people who run the show - do nothing at least till things look a little more raucous before putting a bit of the jackie chan crowd control theory to work. At one shot placate populist rabblerousers, on the other hand "force" foreigner entrepreneurs to up the basic wage and indirectly give the domestic consumption engine a boost without ostensibly touching any of the "sensitive" gears like currency or the trade surplus.Of course that does leave a million other problems unsolved but America took almost 1.5 centuries to start the move into positions of power(post 1776), by that count, China has about 80 years to go...

Tags: china

Obama's reform measures for the banking sector seems to have spooked some investors but is it really the grand gesture of looking back and saying never again? Probably not. Arguably it smacks of political bowing to populist politics. After the Boston boot and the approval slide , the least he has to do in an election year is boost his own party or at least weaken the opposing camp. Which is what that announcement is increasingly looking like. For the Republicans , supporting such a measure would be running in opposition to some of their biggest campaign finance supporters ; not supporting the measure would risk incurring some of that public wrath frothing over the government bailout of irresponsible financial institutions.

What about the impact on financial institutions ? Overtly it is a crackdown on some of the shadier practices in the industry. However in a rules based system the result of more rules is often the directing of creative energies towards finding ways round those rules. Off balance sheet vehicles have always existed and methinks they are set to flourish. As will dark pools .

The money grab by goldman senior bankers and management may well reflect a sense of urgency in making hay whilst the sun shines. Or at least whilst the electric sun provided by stimulus packages still shines. The unfortunate coincidence with the announcement probably did more for Obama's popular support numbers than any Nobel Prize. The irony of it all.

Tags: credit crisis

No, not some reference to the oracle of omaha but rather the varied topics that will be glanced at in this post .
Donald Tsang in Singapore
In a recent question and answer session at a local university, Donald Tsang outlined a general picture of liquidity flows that have resulted in the current situation .May have been broad strokes made some sense so here's a simplified sequence :
Japanese bubble burst in 90s ---> Japanese government response centres around lowering of interest rates and loose monetary policy ---> Japanese face capital outflow as both internal and foreign investors seek better returns elsewhere, situation exacerbated by carry trade ---> Some of those outflows end up in the West but some remain in Asia, fuelling the growth of economies and asset bubbles---> Asian financial crisis; mass exodus of investment outflows---> as part of the IMF and World Bank "prescription" for recovery, expenditure is cut and savings recommended---> Asian savings seek security and returns ---> Investment in US treasuries---> The flush of liquidity is magnified by the brains behind innovative financial engineering and the easy availability of cheap funds leads in part to too much money chasing after increasingly thin returns, thereby increasing the desperation which unfortunately engenders an insensitivity to risk---> The credit crisis --->Government responses worldwide centres around lowering interest rates and loose monetary policies---> Funds seeking shelter and better returns flow into BRIC and Asia creating asset bubbles in various asset classes.
There is no doubt that much detail is missing and some may quibble over the cause-effect sequence but in an age where blame assignation seems more important than making those tough decisions and instituting reforms , playing the blame game is not going to help anyone.
The truth about democracy
A documentary that has helped seal the impression that documentaries have generally improved in quality over the years. Apart from echoing certain philosophy and historical texts regarding the more unsavoury aspects of Athenian democracy, the nuggets of insight it offered on the origins of the democratic movement (empowering the people really started off as mob power) and how different modern democracy is from the original direct democracy practised in ancient greece. Make no mistake , democracy, for all its flaws is much preferable to the myriad of governing systems the human race has witnessed , however to to ignore its flaws and vulnerabilities is to say you love the vision of a flawless moon but not its real appearance up close. Socrates has it right, so let it be adapted for this particular case ; a system unexamined is a system not worth practising.
Of real oz loonies

Not any cryptic rant but rather a reference to growing concern that the commodities bubble is about to reach exploding point. 3 particular economies which have benefitted from the commodities exposure may well suffer when the sword swings in reverse. Their currencies are unlikely to be exempt from the impact ; which means the real, the aussie dollar and the canadian loonie may well be the latest rollercoaster ride in town.

If one were to consider buffets in general, the most notorious are likely to be in Las Vegas which ironically ties in with the present investment environment. Anyone care for a roll of the dice?

Tags: credit crisis, currencies

There seems to be as many in denial as there are those in agreement with the idea that a series of bubbles have emerged across virtually every asset class. That Jim Rogers has come out to say that he sees no bubbles is a disappointment but not much of a surprise. Someone who is way too involved in certain asset classes often does not see (or one suspects, wishes to see ) any bubble. There is little doubt that in the long run, commodities and most  other asset classes will almost certainly head upwards in terms of value. That however remains in the long run. In the short run, there is not merely the threat of bubbles but also that of currency crises. Resisting the impulse to devalue (despite the inevitable misery of the export sectors and the threat of inflation) whilst balancing the need to stimulate and cooling the bubbly froth are all crucial moves in the inenviable balancing act that governments and central banks of  countries ,whose currencies  are effectively pegged to the US$, haVe to perform in the next year. 

Tags: bubbles

The biggest open secret ; iKang Guobin and project fishbowl

The biggest open secret in today's world is the "fragility" of the appearance of economic recovery. What exactly prompts the optimism behind this snap recovery? The unexpected recovery in profits? The consequent readjustment of expectations? Cost cutting measures, writing back excess provisions for bad debt and reserve movements are popular ways to manipulate profit figures. The willingness to overlook the dismal employment figures in favour of anything that will justify the exuberance of the markets is all too reminicent of circa 2007. As long as employment figures do not improve, there is no real recovery, particularly fordemand aspects. The acid test for demand will probably resurface in the christmas festive season. When everyone is trading on a farce and everyone is waiting to see who will trigger the rush for the exit, it is gonna be a really interesting quarter, well anything is possible in an age where Obama wins the nobel peace prize oh partway through his first year in office.

The latest CNA relayed episode of china money mind brought 2 very interesting interviews to viewers. Dr Jin Yanshui's insights on the development of Shanghai as a financial centre was quite solid if traditional. However, there is one point that I would differ on : leverage , whilst raising leverage would be a shortcut to raising the financial profile of the city, even the country , following the anglo-american model recklessly would be disastrous.
Just as interesting was the insight into iKang Guobin. Their purported plan to expand into the lifestyle management is fascinating. How they intend to implement that with a unique Chinese touch would be an eye-opener. For instance,IMHO, an easy portal into that arena would be through the practice of shi liao (dietary therapy) which is a popular concept in eastern medical practice. In the east, chinese medicine is not an alternative medicine, which means it could well blend in with healthcare and lifestyle management practices , melding western concepts with eastern culture.

Busy with developing concept of online retail that drives social cause - unlikely to be blogging for some time.

 

Tags: china money mind, recovery

There is much to admire of China at present, certainly much should be made of the leaps this country has made in the last few decades. However, there are 3 problems it has to face and hopefully overcome in the next few decades or risk having its miracle disintegrate and the critics crow.

1) Societal pressures

There is good reason for the rise of "harmony" as political slogan in China. Apart from having to deal with the cultural sensitivities of over 50 different ethnic groups and seccessionist sentiments of various regions (both of which have come to the forefront in recent times) ,the social results of its meteoric rise such as the unspoken social disparity and wealth gap (that has unsettled  older generations who remember the tenets of Chinese communism) pose problems for any governing body. How to distribute or at least try to ensure the flow of wealth in more equitable ways is a perennial question . In the scramble to get ahead, how does a tiny minority ensure those struggling behind do not succumb to resentment and mob mentality? How will its leaders plan to cope with the "grey shock" that is the inevitable result of its one child policy( so successful particularly amongst its urbanites)? That these merely form the tip of the iceberg means there is a myriad of other social problems waiting to be resolved.

2) Economic development

Double - digit growth as a permanent feature is near impossible. Slower growth will mean possibly the job losses and social upheaval seen in manufacturing hubs like Guangzhou. The replication of technology parks and constant quest for the miracle industry sector that will have the midas effect is futile as playing catch up means competitive advantage is eroded. What the various regions in their mad scramble often betray is the lack of strategic vision which points to the weakness of big countries; the fractitious nature of regional versus central government. At least part of China's miracle growth formula may be traced to its drive to urbanise ;the question for the future is can this urbanisation rate continue? If not, what will replace this element?

3) Environmental problems

It's no secret that China has environmental problems that rival most developed countries. Water shortage is a chronic problem and even the water available in its major cities is questionable - anyone who doubts that should taste it for themselves.Soil pollution is likely to hit its agriculture sector which would mean trouble spots politically, economically and socially. Air pollution is what scares the tourists particularly when the yellow tinge in the air is not that of the last rays of sun at sunset but the smoke from factory stacks. That ties in with the question of urbanisation - is it desirable to continue at the pace it has gone at even if it were possible to do so? The costs of pollution and cleanup that needs to follow it is a big question mark for the country and its people.

What can one say but congratulations and good luck!
 

Tags: chinese politics

As you may have noted, this is an exception blogpiece largely because it has nothing to do with the themes this blog usually deals with. Despite the title of the exhibition, some may well be disappointed because all that was on display were 4 tiny fragments of the 200 religious "scrolls" amongst the 800 fragmented scrolls. In truth it was closer to a history of the bible as we know it today. A large part sounded like a cartoon summary of the Reformation  history that Mr M used to teach - gratifying to know that old Luther, Erasmus and Calvin still rings a bell! And without all the gross sidetales that always came along in history class! The curators however were another matter; one (the youngest of the lot ) evidently didn't want to be there - not that you would blame him if you'd seen the motley crew that formed the audience that Friday noon.- the other 2 particularly the senior curator and Dr Byrd were much better.If , however, you're allergic to Americans, come with anti-histamine. Frankly the "lectures" were in no way approximating intellectual or academic material and judging from the aspersions they threw on Middle English and Classical culture they haven't had much instruction in the way of either the Classics or Middle English. Apart from all the eye rolling that gave a really good chance to look at the old parliament house's roof, the very thought of Dr B and Prof H 's faces probably made the experience a lot funnier than it would have been. All said unless you are bored, interested in history or really weird (like me!) you might want to consider reading up some articles on the subject instead.Just to make this piece not totally irrelevant ; in holding any exhibition, publicity is paramount, not that there was a lack of it, perhaps it could have been better targetted. The lack of clear sequencing was appalling, sure guests should be free to roam but to get any real idea of what the exhibition is all about there should be proper sequencing.

 

The latest lot of data by the Chinese bureau of statistics indicate a mixed bag of news. CPI , PPI and BOP stats all look to be stabilising. What ended the news segment was the footnote that CIC (which manages 200 billion of China's 2 trillion foreign reserves) was looking to increase the foreign segment of its investments to 10 billion- would that have been news to china watchers - not unless you thought it was way more - aww, it's times like these that setser's blog/forum is sadly missed. The question is who's getting an upper edge in the power struggle? The saga continues...

The segment on Insite asset management's Mr Dickson Szeto was interesting ; most watchers of the property sector tend to look at funds focussed on investment and REITs where commercial property is concerned, whereas Insite's main concern is with operation rights. The English translation stated resource assessment but it probably approximates resource matching and management. Call it a curious twist of fate; I've spent an inordinate amount of time in 2 of Mr Szeto's greatest successes to date (mainly because they were near my residence at the time) and have witnessed the transformation of one of the malls. The problem is much of the concept behind the retail arrangements was quickly copied and replicated, if you ever get the strange feeling of deja vu strolling around a mall in China , there is good reason for that.  There are some basic principles in operating any business which stripped of the complications fits nicely into the BCG matrix , even retail malls where the main pillars are the mix of tenants and the target market. The latter has increasingly become that of the great middle. On the one hand, it fulfils some basic requirements (covering the bases in terms of rental income, cashflow and occupancy rates) . However, it has also created problems because the same consumer segment is targetted, the tenant groups tend to be similar; that explains the "retail fatigue" that one may experience ; in more extreme cases you might even think the floor plans were replicated. Of course there are efforts to break away from the staid mode with certain malls targetting niche operators, new/unknown designers or entrepreneurs , however that raises the question of stability in terms of rental or occupancy. Basically it's a rebalancing of the BCG matrix that curiously (but unsurprisingly) applies to many business operations even in this day and age. The profit margin however depends on another big  theory of business management - product differentiation.

 

That said, what was of greatest interest to me was not all that but what Mr Szeto let slip inadvertently in his assessment of some funds which had run into problems in their target investment due to the use of third party information. This is no indictment against 3rd party information, however, the objectivity and relevance of 3rd party generated information and valuations is always in question. There will always be bias and error margin issues involved in statistics and any production of information particularly in relation to projections, taken together with very real issues of conflicts of interest, the impact on decisions taken on the basis of the information could be significant. The real question any company should ask itself is the significance of the information and the transaction involved.

 

Tags: china money mind

 

Those who have seen my comments on other blogs won't be surprised by this : my bet on the "recovery" letter is on "W". Whilst others have seen green shoots, here is my take on the 3 weed species masquerading as shoots:
1) Whilst Geithner waxes lyrical about having learnt the lesson from yanking stimulus/rescue measures prematurely, What this really says about the real economy and the markets is the much vaunted recovery has no legs - mind you not feet of clay but no legs. The miraculous recovery in equity and other markets is really speculation brought about in part by the huge surge in liquidity brought about by the stimulus packages. The other components are unlikely to lack the element of greed.

The question is how long can these stimulus packages last - can they be renewed indefinitely? What is left unsaid is what happens when the stimulus packages are yanked? A"W" recovery alphabet brought to you by the governments of the world?

There is no denying that the stimulus packages did prevent worst case scenarios from developing but they have also proved that greed really wipes out the memory of lessons barely learnt.

2) Speculation really is the order of the day. Where are the much lauded fundamentals for the rebound in the markets? What is the basis for the rebound? The statistics and news that seem to provide basis for optimism is really saying the crash sequence has deccelerated, not that it has ended. As I've said recently to a guy (albeit in totally different circumstances) what is not so bad does not mean it is good.

3) Speculation and reform make terrible bedmates and present circumstances provide great examples. Whilst EU and G20 finance leaders rattle their spears and sabres, there is no clear line on what bank reforms or action on pay and bonuses. Instead what we hear a lot of is fear on the part (most audibly) of the USA and UK that talent might run because of the pay and bonus issue - do they honestly think all that talented people are going to set up shop as boutique funds or retire to a SME life? And we are talking about the talent that helmed today's ship of disaster! Frankly it won't be so bad if they should go into PE or set up funds of their own - let them put their money at risk and gamble with the money of those who have more wealth and greed than brains . Perhaps they could start with the toxic, sorry distressed, assets created by themselves or their ex-colleagues. Or perhaps they could continue with leverage levels which are still ridiculously high and make the speculative profit they are so used to. Perhaps they could revive the market in mortgage instruments after all the banks are quite undaunted in lending practices. So much business and so much fear of damaging such talent; they ought to have no fear for their future!

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There is one particular company that looks impressive despite the "angst vor der zeit" (ok, ok, so that was questionable grammatically) Alibaba whose B2B looks quite stable . What really impresses is their plan for a new platform which might well make the B2C platform look dated. Oh for the lack of money!

 

Tags: crisis resolution, investment