Shanghai Market: Cliff Diving
Submitted by
CalculatedRisk on Mon, 03/31/2008 - 10:07am (165 comments)
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First??
"Four of the five factories we deal with won't take dollars".
How the mighty have fallen.
Not only will the OIL price cool down, but also commodity prices.
But then will the inflation in US increase? because of higher cost of imports?
China just needs to outsource their own production to someplace with lots of unemployed cheap labor. Like Detroit.
"China just needs to outsource their own production to someplace with lots of unemployed cheap labor. Like Detroit."
They've already moved factories to the poorer inland areas, and are looking at India. Detroit? Not that desperate yet.
As for decoupling: how can there be decoupling when the Chinese consumer has to save for retirement, save for medical eventualities, save for education, save for everything? They've outsourced spending -- to us.
why wouldn't chinese take dollars? while i understand that the us dollar isn't the most popular currency in the world right now, isn't it fully convertible at a fixed rate in china to yuan? (and even if the rate isn't 100% fixed, it's driftng very slowly)
--
"Note: a slowing Chinese economy might have a positive impact on the U.S. economy by leading to lower oil prices..."
Yes, indeed, CR. Slowing world economy "might have a positive impact on the U.S. economy." LOL!
What would happen to the booming exports?
Jas
jackk, I thought that was a weird comment too - and I almost left it out. I'm more interested in the changing labor laws and other factors causing the costs to foreign manufacturers to jump! I was stunned when the executive told me their China based manufacturing costs are up 30% this year.
Best Wishes.
CR-
yes that is yet another aspect of an economy that is allowed to overheat. I bet the textile makers who outsource to China are about to push the inflation button on all fabrics and clothes produced in China. The clothing industry felt it in January when orders were sent back with 10-30% increases YOY.
Ah yes the dirty unwanted secret of allowing a country to take over your manufacturing base that has the same problems that caused us to outsource it in the first place. Only this time it took alot LESS time than it did here.
Ciao
MS
We are going to get very used to charts shaped in this manner.
Inappropriate comment deleted by CR
Edited By Siteowner
jackk, I thought that was a weird comment too - and I almost left it out. I'm more interested in the changing labor laws and other factors causing the costs to foreign manufacturers to jump! I was stunned when the executive told me their China based manufacturing costs are up 30% this year.
That doesn't necessarily mean they can pass these costs on. Witness our screeching truck-drivers who can't pass on rising fuel costs due to recessionary conditions.
Also, if costs in China are being driven up by excessive capital spending, not excessive demand for final goods and services, then you have a real nightmare scenario on the horizon.
Jas Jain, There are many factors. IF oil prices decline sharply (as outlined in my speculative post), then that will more than offset any decline in exporting. Besides exports to China were less than 6% of total exports in January.
Compare the size of the imports of petroleum products (and possible decline in imports) to the exports to China.
Best to all
I'm watching the costs of transportation as this relates. For a long time, China was a wild west of sorts on manufacturing and labor. The government will continue to raise standards and working conditions for its people, as that is its job. That means costs will rise even further. Higher labor costs plus higher overall transportation costs will start to shift the fundamentals. But already companies are starting to move elsewhere...Vietnam is very popular right now. I don't see India as a manufacturing country because of the dizzying government bureaucracy.
But with transportation costs doubling due to the price of oil, how long before we see some industries coming back here? How long can you ship cotton to 4 different countries to be processed into material, and then ship it to somewhere else to be assembled, and then ship it to market before the costs start to eat you up?
Another concern for foreign manufacturers is the new labor laws in China. Over the weekend I spoke with an executive of a U.S. based company that manufactures in China. He told me the new Chinese labor laws, combined with other factors, have increased their manufacturing costs in China by 30%!
I've heard the same thing - what is missed in OUR coverage is that growth hasn't slowed that much over there.
The Chinese are trying to move up the food chain & dump low value added dirty material intensive industries as fast as possible. I have a buddy in cheap consumer products & told me something like 8000 small 'private' factories - mostly owned by locals or Taiwanese were shut down in Guangdong Prov. alone over the last year or so... they were the dirtiest & lowest paying facilities around, EXACTLY the kind of suppliers the larger nearby MNC transplants relied on for cheap parts for cheap consumer exports back to USA.
He said some of these plants are relocating inland to places like Chongqing in Sichuan Prov. Or to Viet Nam, India, Philippines. Cheap crap like that isn't coming back to the USA - it left in the 60s & 70s before outsourcing was even a word.
But the fall in the market over there isn't coupled to the economy - not yet. The Shanghai Exchange is a casino at best - it is as coupled to the Chinese economy as Reno or Vegas crap tables are to the US economy.
jack: perhaps they have to bribe someone to get their dollars converted. After all, dollars aren't everyones favorite at the moment and there might be people who try to make a bit of extra money out of that fact...
I don't see India as a manufacturing country because of the dizzying government bureaucracy.
India is ass kick for metals - don't know why but it is. Maybe because 'untouchables' can work there 'unfettered'. Metals are dirty.
Electronics - not so much.
I fail to understand why people insist on applying market analysis to things that are not markets.
China has a billion problems. I said it three years ago and it still holds. It is a near thing whether China can stave off civil unrest until after the Olympics. Exacerbating the issue are the recent mass relocations of millions by both forced and voluntary urbanism. Worse, their banking system is far too immature to withstand even US 1920s style pressures. The real straws on the Asiatic camels' back are transportation costs and basic commodity prices. Good thing they have a centralized command control economy and political system to respond quickly and appropriately every time.
india is down ~30%.
indian realestate market is showing similar strain like china.
Both will BUST.
Would someone venture a guess as to the future of the renminbi. I've read that China is fully aware the yuan needs to strengthen and is actively managing a very slow, gradual process. Others think the currency is gonna go parabolic after the O. Games no matter what. And with the games themselves under some threat...
And on our side...
How low can the dollar go?
BTW, I like how China raises interest rates to control crazy bubbles created by excessively low interest rates.
Though I'm skeptical they would have done it without the inflationary pressures that were present and the threat of civil unrest that comes with, we could still learn a thing or two.
High inflation was an eventual outcome of China's low dollar peg. One way or another prices would adjust. The chinese goverment would have been smarter to appreciate the Yuan faster as opposed to high nominal inflation. They would have more control over prices. Brad Setser has been warning about this for years.
The great masses of the people will more easily fall victims to a big lie than to a small one.
Adolf Hitler
jack: If you have large future dollar receivables, then they could decrease in value as the dollar plummets between the time the order is placed and you get the cash. Though if the yuan is pegged, in theory they should see no impact domestically. But their internationl yen and euro purchases become more expensive. You'd be better off insisting on payment in yen or euros, so your purchasing power relative to those currencies stays the same, and your yuan power actually increases.
ipodius,
Ship lines have a long and venerable traiditon of sailing themselves out of business by chasing market share in high cost / low demand markets.
Containerized shipping is just too efficient for shipping costs to ever outweigh labor costs in the US.
Containerized shipping is just too efficient for shipping costs to ever outweigh labor costs in the US.
I would agree for more-or-less commoditity items. But for other things, I'm not so sure. Besides, you're living through the days of US wage adjustment to meet world market conditions. Ask the UAW what it looks like.
"I've always been skeptical of the decoupling argument, so I wouldn't be surprised to finally see a slowdown in China after the Olympics this summer."
@CR,
A few months ago everyone assumed that China won't let its stock market down BEFORE the O game. Now the market is down by 43%. Also everyone is talking about the collaps AFTER the O game. Why is that? The bubble is bursting now instead of keeping poping till August. After O game, the Chinese market may just reach bottom and rise again.
Maybe our pharmaceutical industry will come back home.
Hmm, so much for the unspoken assumption that a country with a billion people couldn't possibly experience any wage inflation.
Time for the race to the bottom on workers' wages to move to the next, and possibly final, stage. Southeast Asia and India have already been effectively tapped; that means that the lowest-cost-producer-mentality manufacturers are going to have to think about the final destination, sub-Saharan Africa. A whole lot of nail-biting going on in the manufacturing sector, that's for sure.
Short-term inflationary for the U.S., but long-term positive as U.S. manufacturing becomes more competitive albeit very gradually.
off topic
Another hege fund Pardus Capital suspends investor redemptions.
The government will continue to raise standards and working conditions for its people, as that is its job.
Hopefully, but again I think that's easier said than done.
How do you get producers to give consumers "their fair share" so they can keep consuming without demoralizing producers and scaring away capital investment?
The current environment where everybody in China seems to be getting rich may make the problem appear easier to solve than it really is -- businesses that appear very generous during bubbly expansions can suddenly turn very stingy and cut-throat when things start to slow.
Also in an environment of more fluid multi-national markets there's more of a danger that businesses will find ways of outmaneuvering and outwitting both government and consumers, perhaps to the detriment of everyone involved in the longer-term.
Again, there's always the possibility (likelihood?) that the government will make things worse in an attempt to do something that on the surface appears to be a good and obvious goal to pursue.
Peripheral Visionary writes:
...the final destination, sub-Saharan Africa.
PV, you know I respect your views but Africa is untouchable. The infection rate is so high and the infrastructure and politistructure so broken that even negative wages cannot overcome the obstacles. [N.B. I looked it up and made sure the following is not racist.] Sub-Saharan Africa is a tar baby no international corporation is willing to touch.
Containerized shipping is just too efficient for shipping costs to ever outweigh labor costs in the US.
Ah, but you're not considering the time cost. What's the delay on the Port of Long Beach these days? Time delays of six months or more were not as significant when interest rates were rock-bottom and consumer tastes were stable, and they could let stuff sit in containers at little cost with little risk; but higher interest rates and rapidly changing consumer tastes cannot be having a positive effect on offshore manufacturing.
The conventional wisdom in the manufacturing sector was that transportation costs would effectively become negligible. With oil $100/brl and profit margins narrowing across the board, I would call that assumption into question.
"Sub-Saharan Africa is a tar baby no international corporation is willing to touch."
Except the Chinese themselves?
Good thing they have a centralized command control economy and political system to respond quickly and appropriately every time.
Rob Dawg,
Exactly. Obviously sarcasm aside, they close down tens-of-thousands of small dirty manufactoring plants and simply relocate the work to their new energy efficient monstrosities and they can do it over-night. Don't like it, there's the wall, line up...bang bang bang. I don't underestimate the whole "it could fall apart in a heartbeat"--argument, it could go Cambodia and declare Day Zero...And if you don't like it...bang bang bang. But the upside economically is that when China lurches in the right direction, it does so fast...I would still bet on a long timeline, say 10 years, you could get solid returns...well, I guess I am betting.
Most of the comments are missing the point. The factories won't take orders denominated in dollars. This signals an acceptance that the dollar will be devalued after the olympics when most of those orders will be delivered for Xmas.
In other words, word on the street in China is that we drop the peg after the olympics, and we in the US will shortly be much more competitive on a labor cost basis.
Nice.
Now, what does that say about our markets, follow the bouncing ball!
Someday this war's gonna end...
I agree with Rob D-'s read of China.
With regard to oil, yes, short-term, with softening U.S. demand, we'll see lower prices. Medium-term, when the speculators get margin calls and must liquidate assets, we'll see a further decline in the price of oil.
Beyond that, though, with the upcoming collapse of the dollar -- who wants to hold our T-paper as the Fed continues to undermine the credibility and value of the dollar --> repatriation of dollars from China, Japan, and the sheikhs -- oil priced in dollars is going to skyrocket.
Why shut down an entire blog, why not just zap out people that are insulting?
Re: HaloScan.com - Comments
Pathetic, really.
Anonymous | 03.31.08 - 2:59 pm
Rob Dawg writes:
Peripheral Visionary writes:
...the final destination, sub-Saharan Africa.
PV, you know I respect your views but Africa is untouchable. The infection rate is so high and the infrastructure and politistructure so broken that even negative wages cannot overcome the obstacles.
Rob Dawg,
O.k. It's mostly untouchable, but I've got like .5% invested broadly in Africa as a whole, probably nothing sub-saharan...but again, the upside is high reward, the downside is coupe-of-the-week/infrastructure/literacy/disease/war/famine...
the infrastructure and politistructure so broken that even negative wages cannot overcome the obstacles.
I was in Mexico studying and was doing a tour of some of the manufacturing facilities there. I was talking to some people about why Mexico (and most of South America)wasn't a destination for all this and China was, given the time zone issues, transportation costs, language barriers, etc. And that was the answer. Too politically unstable, too infrastructure poor, and governments, even when they are stable, unwilling to kick butt to get stuff done. And, btw, in Mexico at the time, a maid actually made more money than a primary school teacher. So the work force is vastly skills-challenged and, again, the government doesn't do much about it. Africa is the same, but raise it up 10 orders of magnitude.
Rob, I understand that that's the conventional wisdom, but do not underestimate how addicted the manufacturers are to cheap labor. They'll chase the Philippines, Bangladesh, etc. first, but they'll have to look at Sub-Saharan Africa eventually. The conventional wisdom used to be that China was too much of a political risk to be trusted with manufacturing. But when executives looked at the relative labor costs, political risk just didn't matter to them. For what it's worth, South Africa is probably too expensive; but Nigeria and the DRC have to start looking tempting at some point. Bear in mind that manufacturers are already heavily invested in the Caribbean; culture-wise, Sub-Saharan Africa isn't that much of a jump.
Of course, one of these days someone will get serious with the question of how automated manufacturing compares with mass low-cost labor.
What would the impact to the global economy be if China were to experience 5% annual economic contraction for 3 or 4 years? Wouldn't the impact be relatively minor? Chinese people consume considerably less than people in developed nations, and they also have significant savings, right?
So wouldn't a downturn in China just be a short-term blip that hardly registers? Hey, Hong Kong had a crash in the '90s and they barely skipped a beat.
That doesn't necessarily mean they can pass these costs on. Witness our screeching truck-drivers who can't pass on rising fuel costs due to recessionary conditions.
In some cases - yes they can. The margins are unbelievable IF the MNC middleman profits & 'charges' are excluded or reduced. A 30% increase in mfg cost isn't a big deal in a lot of imported consumer products... Understand mfg cost is only 10-20% of the cost you pay... sometimes less. The add on the MNCs place, transport & distribution cost here & retail mark up is most of what you are buying at WalMart & such.
A lot of it is corporate overhead here - the Chinese are putting the squeeze on to get MNCs to move both front & back office over there where its cheaper. I see it happening already - get CAD file 'drawings' from MNC product managers stationed in Asia supporting NAFTA Zone markets now.
Everyone is predicting problems for China after the Olympics and yes there will be a host of issues facing the Chinese gov. However, having outsourced our manufacturing, having insourced ignorance and incompetence into our government, having financial engoineering our main industrial product, creates a host of issues for us. thinking that unrest in
China will somehow cause added prosperity for us is a little like believing that Dick Cheney might understand the Constitution.
Peri Vis,
China of course ignores the conventional wisdom...ironically they are heavily investing, even in manufactoring, in places like Sudan (although mostly oil/natural gas) and sub-saharan regions. Basically they've replaced all US foreign investment in Africa. It's nice when risk is subsidized by the State.
Of course, one of these days someone will get serious with the question of how automated manufacturing compares with mass low-cost labor.
Peripheral Visionary | 03.31.08 - 3:29 pm | #
Guess we need to get some automated consumption going, STAT!
The Charlotte Observer
Customers, Ex-employees question pick-a-payment / Complex Wachovia mortgage program worries some (mortgage scam du jour)
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the Chinese are putting the squeeze on to get MNCs to move both front & back office over there where its cheaper. I see it happening already - get CAD file 'drawings' from MNC product managers stationed in Asia supporting NAFTA Zone markets now. - dryfly
This is what happens as the result of decades of blind eyes to intellectual property transfers. In the early 80s it was Japanese who wore soft soled heels in my shop and "picked up" metallic shavings of in-process materials for things like titanium blades or hi-temp stainless borescope plugs. In the 90s Walmart went full bore and blatantly with every mfg process management technique they gleaned from their suppliers and gave them to the Chicomms. Now we let composites and pharma expertise go abroad for less than nothing. Gone are the days when casting foreman in Bridgeport wouldn't so much as tell you how long they let the bases stress relieve in the weather before finish machining. [Last is "inside baseball" for Dryfly]
Red Pill,
This is happening in China and potentially is destabalizing. As the hard-industries automate, hundreds of thousands of workers at a time are made redundant. This may be the biggest risk to the government, not the exploited rural population...got to employ those emerging middle-class Chinese so they can buy cars made in China...or else. Of course there is the bang bang bang option...
I was stunned when the executive told me their China based manufacturing costs are up 30% this year.
Best Wishes.
CalculatedRisk | Homepage | 03.31.08 - 2:53 pm | #
I can sort of confirm something simalar in India. I get lots of disapointed reactions from employees over there when they get annual raises of 25%. From a U.S. point of view its even worse given that the Rupee is now a harder currency than the dollar.
Rob Dawg,
Amen.
In other words, word on the street in China is that we drop the peg after the olympics, and we in the US will shortly be much more competitive on a labor cost basis.
You know what is also missing in this discussion?
That after the Chinese reval all those MNCs that built in China when the yuan was cheap get an immediate profit IN DOLLARS the minute the peg is dropped.
Build a $100MM factory in China when the USD:RMB was 8:1... and its worth RMB800MM... Change the ratio to 6:1 and now that 800MM RMB is worth $133MM without doing a thing. But you better get that plant bought BEFORE the reval or you're SOL.
That was part of the reason behind the spec fever in China - capital arbitrage.
From the lead article:
He told me the new Chinese labor laws, combined with other factors, have increased their manufacturing costs in China by 30%!
Wow... suddenly a little automation pays off. Not to mention, that is a sudden 30% cost increase to be borne by the US consumer. J6P might just have to do with less crap... naaa...
Got Popcorn?
Neil
o.k., so the peg is dropped after the olympics, and we are more competitive, so we export more...but you can only make so many widgets, so you have to expand, and to expand the revenues probably won't cover massive capital expenditure so you have to borrow, but borrowing is expensive, so you expand to sell more widgets but some cost is eaten with interest on the borrowing...I don't know, the order of magnitude that exporting would need to expand in order create a significant net-benefit to over-all GDP...not sure that is going to solve the cost of credit problem....but with government intervention backing a strategy to expand our export capability...maybe we're competitive in 5 years.
Anyone got a link to this whole dollar peg drop after Olympics thingy?
Cheers,
Neil,
Interesting coincidence of those two words; automation and popcorn. The US could become the world locus of agriculture very easily if we did for our crops in the 2010s what we did for our manufacturing during the industrial revolution.
I for one would much rather pay technicians servicing robots built by dryfly designed by me to pick strawberries than to pay for ICE border patrols and deportation hearings.
"manufacturing costs are up 30% this year."
How much Oil and food has gone up this year ? Considering the electronic press of the FED are working 24h/day, it's so predictable.
Look at rice price rises <a href="http://www.msnbc.msn.com/id/23832071/> here. That's what count in China, India, and IndoChina.
RUN FOREST RUN!!! Wall Thief making a stab at 12,300 again! Can't close the quarter on a bummer now can we
blackhat writes:
Red Pill,
This is happening in China and potentially is destabalizing. As the hard-industries automate, hundreds of thousands of workers at a time are made redundant. This may be the biggest risk to the government, not the exploited rural population...got to employ those emerging middle-class Chinese so they can buy cars made in China...or else. Of course there is the bang bang bang option...
blackhat | Homepage | 03.31.08 - 3:42 pm | #
That is why I made the quip. What does it mean to automate so much?
There is a almost fundamentalist economic belief in the US right now; the belief is that the maximization of profit in an industry leads to the maximization of the ideals we wish to exist in society.
Free market capitalism is great at innovating and producing as cheaply as possible TVs and plastic crap of various sorts.
It does not seem to be as good at creating a healthy educated population.
We are now consumers instead of citizens.
Have you ever noticed that in discussions of macroeconomics the language often works just as well if you are discussing humans or discussing widgets.
We apparently are now fungible.
I am not encouraged by what I know of history. The dehumanization of people seems to often lead to that "bang, bang, bang" option you alluded to.
Why so quiet on the UBS plan to give their clients a haircut? Not a single peep about it on bubblevision.
Maybe if they don't talk about it no one will notice...Except those getting the notice TODAY.
The Democratic chairman of the U.S. Senate Banking Committee on Monday called the Treasury Department's plan to overhaul financial regulation "a wild pitch" that fails to address the housing market crisis.
Sen. Christopher Dodd of Connecticut said he welcomed the plan offered by Treasury Secretary Henry Paulson, but questioned its relevance in addressing falling home prices, rising foreclosures and the imminent threat of recession.
"To talk about overhauling the regulatory system is a wonderful idea. But frankly it doesn't relate to the issues we're grappling with," Dodd said on a conference call.
"I would call this a wild pitch. ... It's not even close to the strike zone," he said, drawing upon American baseball imagery to criticize Paulson's proposal.
Amid a deepening crisis in housing and credit markets, Paulson on Monday issued a sweeping plan that calls for giving the Federal Reserve more authority over Wall Street, cracking down on mortgage brokers, reshuffling the duties of some agencies and setting up a federal insurance regulator.
404 Page not found
RUN FOREST RUN!!! Wall Thief making a stab at 12,300 again! Can't close the quarter on a bummer now can we
Hey, come on. End of quarter I was expecting mega-pump city.
I think they took it really easy considering.
Rob, farm production for many crops in the U.S. is already heavily automated, although there has been an anti-agribusiness backlash on that front. I do think fruit and vegetables are behind the curve, as ultra-cheap south-of-the-border labor has reduced the incentive for innovations in automation; I generally agree that a little more regulation on the immigration front would encourage them to catch up with the level of automation in grains, dairy, etc.
The trick is to convince manufacturers to do the same. The problem is that automation is extremely capital-intensive and only pays off in the long run, and many companies are severely short-sighted.
--
Thanks, CR. I understand your reasons.
Let me rephrase the issue because I want to get to something that is very important regarding the discussions on this blog.
Political appointments play extremely important role on our economy (Federal Reserve being the most obvious example), no?
Do race, gender, ethnicity, etc., play a role in political appointments in order to pander to certain groups?
Isn't this part of the problem in our system today? (It definitely was not as issue 50 years ago).
What are the consequences of this practice?
For example, some of the justifications being offered for bad lending are “to help minorities,” no?
We canÂ’t afford to hide from the reality and consequences of bad practices that are fully acceptable even when they are wrong in principle.
Jas
Red Pill,
I'm not encouraged either. China is the bang bang bang variety, which is why most of the other coersion seems to work so well.
sigh.
CR,
Would you also mention Indian IT slowing down big time ?
The Hindu Business Line : IT hiring slowing down
The impact could be nasty.
Any other indian market experts here who could throw in their two cents ?
Great post, CR.
There's a FT article on the exporters shunning dollars: < ahref="http://www.ft.com/cms/s/aac6859e-fc35-11dc-9229-000077b07658,dwp_uuid=eaa4d862-6d69-11da-a4df-0000779e2340,print=yes.html">Chinese exporters shun flagging dollar
Apparently, the renminbi is now moving closer to the Euro. I have a renminbi account, and it is definitely appreciating and is almost certainly to move more quickly.
The government's current policy of slow appreciation is simply not sustainable. It would mean a combination of growing inflation and growing commodity subsidies. The same thing is happening across Asia. I heard someone on Bloomberg say that 4% of Indonesia's GDP is now going to subsidies, and he expected it would soon be at 5%.
One point I would make, there seems to be an assumption that these prices will be passed through to the US consumer. But corporate profits are at an all-time high and incomes here are stagnant. So who's going to take the hit?
China is now the key to how bad things get for the world economy. If their consumption drops, look out below.
Personally, I see the potential for a big melt-down due to over-capacity in production in Asia, which will become apparent when consumers both in the West and in Asia pull back, even just a little. Meanwhile commodities take a hit and demand in places like Australia, Brazil, Middle-East, Russia falls, compounding things.
I'm not predicting that, but I'm looking for signs. One sign will be when the SSE composite is at a 52-week low.
I got into the Chinese market in 2004/5 and consequently am still ahead. Way ahead in some cases. There are still, I think, perfectly reasonable buys there, especially on a long term basis. After all, the yuan can only go up and that will surely benefit Chinese stocks. I am prepared to ride out the bumps.
Well China has other options than selling everything to the USA. In fact it has a vast underserved internal market that it can go to work on. It won't happen overnight, but ultimately China, like the US in the early 20th century will boom on internal demand.
(I think this will probably happen and we CR bloggers should learn more about the process.)
Telegraph UK
Fed eyes Nordic-style nationalisation of US banks
Fed eyes Nordic-style nationalisation of US banks - Telegraph
Well China has other options than selling everything to the USA. In fact it has a vast underserved internal market that it can go to work on. It won't happen overnight, but ultimately China, like the US in the early 20th century will boom on internal demand.
Jim
This is the assumption, and all those things could indeed be said of the U.S. in the early 20th century. Of course, 1929 was in the early 20th century.
China has a lot of the same symptoms we had: really skewed income distribution; a speculative bubble; they are party to screwed up balance of trade regime; a suspect banking system; etc....
I agree with Sniglet. China is so vast and its potential so great, I doubt that a temporary slow down in the USA will do it much damage. Lots of predictions of problems for China, in my opinion, come from underlying anti-Chinese attitudes and fear of what it is going to become. Thus people are wishing it to have far more problems than will be the case.
Re: Three months into 2008, China's property developers are under siege.
America is still under siege as well:
The percentage of New OrleansÂ’ homeless is one of the highest recorded since U.S. housing officials began tracking homelessness in the mid-1980s, said Dennis Culhane, a University of Pennsylvania professor who has studied homeless trends for more than 20 years.
“In a modern urban U.S. city, we’ve never seen it,” he said of New Orleans’ homeless rate.
‘New Orleans is facing an epic housing crisis,’ The (U.K.) Guardian, March 20
Hurricane Katrina damaged or destroyed nearly 52,000 rental units in the city and the homeless population has doubled to about 12,000. Meanwhile, rents in most sections of the city have increased by nearly 50 percent and thousands of homes that could have been rehabilitated are being demolished
Jim writes:
Well China has other options than selling everything to the USA. In fact it has a vast underserved internal market that it can go to work on. It won't happen overnight, but ultimately China, like the US in the early 20th century will boom on internal demand.
Jim | 03.31.08 - 4:12 pm | #
A lot of the US mfgrs I know in China tell me that is where the profit will be - not exporting the the US & EU. That if they relied on exports alone the investment would have been a loss.
People have been calling for this to happen since the early 1800s - looks like it just might be for real this time... if the place doesn't blow up politically that is.
Mass. Bob:
The US economy grew immensely before 1929 and vastly afterward. The depression decade was, as is now clear, the result of stupid government policies. I think you simply hope China has problems so that it will not be the colossus that it will be ten to 20 years down the road. Americans are deep down very resentful and fearful of China.
Western OEMs have put up with shoddy Chinese quality and slimy Chinese business practices because the "Made in China" discount has been big enough to justify the trade off.
All of sudden China is no longer a bargain, plenty of the shoddy manufacturing will move elsewhere. Not to the US at first, as everyone tries to find the "next China", but eventually many of the mid-market items will return. There is no "next China".
My predictions: huge economic & social shocks in China starting post Olympics due to major US slowdown, skyrocketing costs, and endless glut of low value added mfg. The sudden jump in costs there (combined with the never ending quality issues) will crush China's hopes of quickly moving up the value chain Japan / Taiwan style.
Lots of predictions of problems for China, in my opinion, come from underlying anti-Chinese attitudes and fear of what it is going to become. Thus people are wishing it to have far more problems than will be the case.
Jim
No offense, but that's total crap. I was invested in China back in 2004.
On the contrary, a lot of the predictions of endless prosperity for China are simple-minded.
Well Mass. Bob, we'll see how simple minded. I look forward to finding that out. PS: I never predicted "endless prosperity" for China and the US did not have "endless prosperity" in the 20th century or the first half of it either. But overall the US economy did very very well and the Chinese will do very very well too. I wouldn't, if you pardon the expression, sell China short.
blackhat writes:
Red Pill,
I'm not encouraged either. China is the bang bang bang variety, which is why most of the other coersion seems to work so well.
sigh.
blackhat | Homepage | 03.31.08 - 4:06 pm | #
blackhat,
I know you are not encouraging anything of the sort. It is just that the whole discussion is starting to make me very sad.
I am a fan in general of the power of a capitalist economy, but having profit and growth as the only measuring sticks doesn't seem to be creating a world I am particularly excited about raising children in.
China is to the current world financial crisis what the US was in the late 20's and 30's. The US's role?....much like Great Britian.
huge economic & social shocks in China starting post Olympics due to major US slowdown, skyrocketing costs, and endless glut of low value added mfg. The sudden jump in costs there (combined with the never ending quality issues) will crush China's hopes of quickly moving up the value chain Japan / Taiwan style.
Yeah don't we wish. And wish hard. LOL.
OT:
My Way or the Highway
EDITORIAL; My Way or the Highway - NY Times
In a lower job in that office, Mr. Bradbury signed off on two secret legal memos authorizing torture in American detention camps. The first approved waterboarding, among other things. When Congress outlawed waterboarding, the other memo assured Mr. Bush that he could ignore the law.
Mr. Bradbury is widely viewed on both sides of the aisle as such a toxic choice that he will never be confirmed. The Senate has already refused to do so twice. Still, Mr. Bush clings to this lost cause, snarling the confirmation process for hundreds of nominees and crippling parts of the federal regulatory apparatus.
Bob_in_MA writes:
Lots of predictions of problems for China, in my opinion, come from underlying anti-Chinese attitudes and fear of what it is going to become. Thus people are wishing it to have far more problems than will be the case.
Jim
No offense, but that's total crap. I was invested in China back in 2004.
Hi there,
Please take a look at this.
Iraq: a conflict arising from the emergence of China?
A Canadian academic turned journalist argues that China was at the forefront of US thinking on Iraq
BrantW writes:
China is to the current world financial crisis what the US was in the late 20's and 30's. The US's role?....much like Great Britian.
The similarities are striking. We had become Britain's lender, while we had the growth.
Speaking of corruption:
For sale: WestÂ’s deadly nuclear secrets
For sale: West’s deadly nuclear secrets - Times Online
Among the hours of covert tape recordings, she says she heard evidence that one well-known senior official in the US State Department was being paid by Turkish agents in Washington who were selling the information on to black market buyers, including Pakistan.
The Japanese experience has many lessons for one wishing to predict how China will do. Japan was thought to depend upon exports to the US but in fact Japanese GDP grew steadily and rapidly during two very severe US recessions. Here are the GDP figures for Japan in millions of yen for 1970 (73,345,000); 1975 (148,327,000) this during the 1974/5 downturn in the USA; 1980 GDP was 240,707,000 and inspite of the US extreme recession of 1980/81 by 1985 the Japanese GDP 323, 541,000. I would say the Japanese economy managed to do very well in spite of US recessions and I expect the Chinese will do just as well too.
Jim writes:
huge economic & social shocks in China starting post Olympics due to major US slowdown, skyrocketing costs, and endless glut of low value added mfg. The sudden jump in costs there (combined with the never ending quality issues) will crush China's hopes of quickly moving up the value chain Japan / Taiwan style.
Yeah don't we wish. And wish hard. LOL.
Jim | 03.31.08 - 4:25 pm | #
Jim Rogers?
Fed Up: The Bush-Paulson Financial Reform Plan Is a Bogus Scheme
Fed Up: The Bush-Paulson Financial Reform Plan Is a Bogus Scheme | Corporate Accountability and WorkPlace | AlterNet
In response, despite its obsession with surges and bombing Iraq back to its idea of "normalcy," the White House says it now feels our pain and has decided to act. Well, at least, to let former Goldman Sachs CEO Hank Paulson, now our Treasury Secretary, (in the tradition of former Goldman Sachs exec Robert Rubin who followed the same career path) impose yet another new pacification plan.
Paulson's has studied the crisis, studied it deeply, and realized the culpability of the brokers and the banks in engineering the disaster. His solution: kick the ball over to The Federal Reserve Bank. He's enlisting the Fed foxes to guard a Wall Street chicken coop at risk from a dangerous form of bird flu. (The technical term is "greeditis" enabled by regulatory arthritis.)
The predictions for difficult times ahead for China are based on the simple fact that China's current system is unsustainable. You cannot build long-term prosperity by artificially valuing your labor below its true market cost. The laws of economics are notoriously immune to repeal, and China will not be able to escape the serious inflationary implications of its current system.
And that's without taking into account the negative effects of its authoritarian regime and the pending impact of its growing gender gap. I consider India to be a much stronger candidate for a permanent move up the economic ladder than China.
I don't see India as a manufacturing country because of the dizzying government bureaucracy.
The prime minister of India, Manmohan Singh, has several degrees in economics, and has worked for the IMF and as the "Governor of the Reserve Bank of India". This suggests that he may know something about job creation.
Yeah Peripheral: ain't it just awful what's going to happen to China? Just awful. (Don't we wish). LOL
This suggests that he may know something about job creation.
Yes, but there is an argument that an economy progresses through phases...agri-manufact/indust-knowledge and that to skip steps requires government wherewithall and concerted efforts to educate vast swaths of the population. India is trying to perfom this feat, and trying to skip the manufacturing/industrial growth step. Given the government infrastructure, immense poverty, and lack of social mobility through the unofficially enforced caste system, this isn't likely to happen. And it isn't really happening, which is why India has not taken off like China. India is also far more exposed right now to US economic swings, as we aren't going to stop buying sneaker anytime soon, but boy are we going to pull back on IT projects that are outsourced over there and we're already pulling back on the number of grads being recruited stateside. India is missing a base that China has taken great pains to build.
I have no idea why CR et Tanta have let this go on but I shall chime in one last time.
What the rest of the world has to worry about vis China is that with a small taste of international influence that they will proceed to misread world resolve vice Taiwan. The Chicomms really really don't understand that Taiwan is gone from them forever. There are several middle Eastern parallels that come to mind. Internally they face something analogous to the US post WW-I when the doughboys came home and nearly caused a socialist revolution over war bonuses. The phrase persists today as "how ya gonna keep em down on the farm after they've seen gay Paris?"
More market juice!
Pardus Capital suspends investor redemptions in $2bn hedge fuck. Some of firm's big, concentrated positions hit by market volatility
Pardus Capital suspends investor redemptions - MarketWatch
I wouldn't expect Oil to fall too far under 90 dollars. Oil is getting more scarce and more expensive to bring to market and that is not going to change. US unleaded will still be over three dollars especially with a weakening dollar.
Holy Smokes this is going to be bad
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOUguDZ3r_KE&refer=home
FFDIC, the money quote is this:
"For the portfolio companies themselves, this is good news because it reduces any market anxiety that we might have to sell shares as we will be able to maintain our investment horizons on our core positions and complete our strategies"
LOL! So this is good news! It just doesn't get any funnier than this!
I agree with the comments that say the Chinese invoicing in non-dollar currencies is a big deal. If people on the street won't take it, eventually the central banks won't want it either. I think someone above posting a link to a Financial Times article - here is a link to naked capitalism quoting the same story.
Chinese Avoiding Dollar as Invoicing Currency « naked capitalism
Re LEH selling shares:
"We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Chief Financial Officer Erin Callan said in an interview. ``This is an endorsement of our balance sheet by investors."
Just stop it already! I haven't stopped laughing from the Pardus Capital quote!!!LOL
ipodius.
Exactly I almost fell over laughing. Its like saying I'll show you how much money I have by maxing out my credit card
Well, at least this proves that there is still a vast pool of talent from which the administration can pick when trying to hire new press secretaries! Those have to be the funniest quotes I've read in a long time. But the sad part is, people will believe them.
LEH's results - Accounting Michelangelos at work.
Lehmans Debt Shuffle - News Markets - Portfolio.com
India is also far more exposed right now to US economic swings, as we aren't going to stop buying sneaker anytime soon, but boy are we going to pull back on IT projects that are outsourced over there and we're already pulling back on the number of grads being recruited stateside. India is missing a base that China has taken great pains to build.
India is less exposed - they depend less on exports in total & cater more to domestic demand. This is a result of not pegging - when they export too much the rupee strengthens & their gov't hasn't been near as aggressive at FX manipulation to offset.
Look at Tata - most of their focus is domestic demand & they do a pretty decent job in their market. China is really ramping up their parts business to export - waaaaay more than is necessary for the Asian market.
BTW - I've interviewed with both Indian & Chinese mfgrs and without exception the Indians were way more focused on domestic first export second. It generates slower growth but is more sustainable long term (Henry Ford model - must be able to sell to your workers, long way to go but they are getting there).
The risk in India is a political mess from the ethnic mix - way worse than China (something like 60 major languages in India).
New labor laws and increased salary for workers? Wow - maybe China will someday become a communist "worker's paradise".
dryfly - agree completely on your India comments.
In my recent trip to India - I met execs from BMW and Volvo who were there to setup plants. India's service outsourcing (including IT) is more concentrated on the US rather than Europe. I got the sense that European companies might turn to India more for manufacturing than services.
My Japanese Shipping friends informed me yesterday that containerised shipping traffic to US has declined by about 30% YOY. (quoting Kaiji Press an Shipping News Daily from Takyo).Also the much anticipated rise in the traffic after Chinese New Year failed to materialise.
Can someone confirm this.
I agree with the comments that say the Chinese invoicing in non-dollar currencies is a big deal. If people on the street won't take it, eventually the central banks won't want it either.
The reverse is probably true - meaning the central bank (PBoC is pushing dollar reserves bank to the regional & sector banks saying - deal with this crap). Those regionals & Sectors are the ones that convert the dollars from export to RMB so they are being flooded from both ends... Given the resistance the biz guy says screw it - give me RMB only.
BTW - the reason the PBoC pushed dollars back on the regionals & sector banks was to encourage them to invest in a less 'centrally planned' fashion - encouraging Chinese state owned & private enterprises to buy outside China with the dollars... in short get rid of them. They get special deals from the PBoC too do that (read it on Setser about six months ago).
dryfly thanks for the India comments!
FFDIC writes:
More market juice!
Pardus Capital suspends investor redemptions in $2bn hedge
Wow, I gotta close some shorts - the market will soar tomorrow!
Still nothing on MSM w/r/t UBS.
Apologies if a repost - LEH can haz capital now!
Lehman to Sell $3 Billion of Shares to Institutional Investors
By Yalman Onaran
March 31 (Bloomberg) -- Lehman Brothers Holdings Inc., which has dropped 42 percent this year in New York trading, is selling at least $3 billion of new shares to U.S. institutions to reassure investors it has ample access to capital.
Lehman will offer 3 million convertible preferred shares, the New York-based firm said in a statement today. It didn't identify the investors.
We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets,'' Chief Financial Officer Erin Callan said in an interview.This is an endorsement of our balance sheet by investors.''
[snip]
Anon:
The Mayor of New Orleans whom presided over the city during Katrina and allowed in to slip into the gates of hell due to pure incompentance was....re-elected.
Since the hurricane not only has the number of homeless increased, but New Orleans is once again the murder capital of the country.
New Orleans is now, has it has always been, the biggest cess pool certainly in LA if not the country. This honor is attributed to its residents as they elect their crooked leaders and choose their own destiny.
dryfly, Thanks, do you have a link to the Setser comments you referred to?
``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets"
LMFAO!!
Then why do it?? Why dilute current s/h's then??
Lehman Brothers Holdings Inc., which has dropped 42 percent this year in New York trading, is selling at least $3 billion of new shares to U.S. institutions to reassure investors it has ample access to capital.
Why not prefereds w/ a 18% rate?
Dryfly - 100% correct on India's domestic focus vs China.
Worth noting that China's lucrative export tax rebate system skewed their manufacturing sector towards exporting, while India has moved on more organically. and India lacks they infrastructure and command govt to ramp up exports as quickly.
A staggering amount of China's "domestic" growth, is simply infrastructure (power plants, cement plants etc) being put in place to serve the export sector - not to meet consumer demand. What happens if the export sector cools?
OHHHHHHH Snap. Lehman what have you done?!!
RE: shipping volumes . . .
The Port of Los Angeles | Maritime
Port of Long Beach - Latest Monthly TEUs
Imports through LA/LB appear to be down less than 10% on a year over year basis in February. March figures (including post Chinese new year volumes)won't be available for a couple weeks.
Seems unlikely that a 30% drop in shipping volumes could happen without seeing it at LA/LB.
FWIW
ipodius writes:
dryfly thanks for the India comments!
ipodius | 03.31.08 - 5:06 pm | #
Thanks - BTW I'd work for more than a few of the Indian firms I'd met - decent people to both their customers (here & at home) and also to each other (workers). Very similar to how more businesses in the US used to treat each other & their workers (from my fathers stories of the 50s & 60s). Really refreshing.
The Chinese were decent folks too but have a lot to learn - probably have lots of bad habits learned from state owned & 'commune' days. Party bosses were (and probably still are) some of the biggest assholes on earth.
Does this mean the "made in china" labels will disappear from Wal-Mart shelves to be replaced by "made in michigan" labels?
Problems with India are poor infrastructure, high illiteracy rates (esp among women) and horrible bureaucracy.
dryfly writes:
The reverse is probably true - meaning the central bank (PBoC is pushing dollar reserves bank to the regional & sector banks saying - deal with this crap).
In VN they would buy USD from exporters, but with 1.5% commission and 2% for bank transfer fee. (15,800 vs 16,120 VND/$)
Hey investors, don't worry if we dilute you down to zero; it's just for appearances...
Dang, that Lehman quote is brilliant. We should just abolish English and switch to Newspeak already.
"The Chicomms really really don't understand that Taiwan is gone from them forever."
LOL. Yeah, those "Chicomms" (note the insulting term) don't understand much do they? I think they understand that before too much longer the USA will be gone from the Far East and China dominant there and Taiwan reintegrated with the mainland, albeit possibly with special status like Hong Kong. The people who don't understand the future mostly reside around a place called the Pentagon.
calvert writes:
dryfly, Thanks, do you have a link to the Setser comments you referred to?
calvert | 03.31.08 - 5:11 pm |
Not anymore - I go there read and move on. After a period of time they'd close it off inside the pay wall so no use for a freeloader like me to keep.
Maybe its all open now but not sure. I recommend following that site as close as this one for macro stuff (no trading info worth a damn unless you are inside the pay wall). BTW - their comment section is WAAAAAAAY worse than Tanta's Jackson post... A guy named Chaing has made it a personal mission to fight Setser every inch of the way - I ignore & read the good bits.
Dr. Setser
A country with a per capita income of $3500 per person and imports oil and AG basics has a significant problem. They have had riots over cooking oil which tells much about their economy.
Does this mean the "made in china" labels will disappear from Wal-Mart shelves to be replaced by "made in michigan" labels?
No, nothing can save Michigan
Perhaps "Made in North Dakota".
Well any nation with riots over cooking oil can't amount to much, can it now? What about a country with riots over Filene basement sales? Or say riots about police shootings? Can it be anything to write home about? LOL.
RE: Chinese wage inflation. A retailer who imports alot of Chinese stuff (generally, of the plastic crap variety) explained to me that the booming Chinese electronic industry has resulted in a shortage of skilled labor. The plasma TV makers are poaching the best workers from the plastic crap industries, with wages being increased by plastic crap makers to attract and retain workers.
I thought Jeff Daniels had the Michigan thing covered with those fabulous commercials.
Barley - nothing on UBS yet, but we appear to have our first class action retail investor lawsuit for ARS, in this case vs. Mother Merrill
Expired
I've been developing software for almost 20 years.
India has not lived up to its billing as a looming software powerhouse.
Giant outsourcing operations have done well recently, but they are based on the outdated idea that you need an army of cheap software people to build something big and powerful.
Today, the software landscape is literally bursting with high quality source code available for free. This software was built by dedicated volunteers, which is about as cheap as it gets.
Today, a startup company can get off the ground with just a few people.
Why do you need an army of programmers in Bangalore?
Only IBM or Google could justify investing in building development teams in such far away places.
For everybody else going that route, you are probably paying to reinvent the wheel. And your wheel may suck.
A country with a per capita income of $3500 per person and imports oil and AG basics has a significant problem.
Sounds like Germany about 1950, Japan about 1960, Korea & Taiwan about 1980... etc.
crispy&cole writes:
``We still maintain that we don't need capital, but we've realized that perception is the dominant issue in today's markets.. Then why do it??"
If you were the manager of a solvent bank, and a panic is going to happen unless you open the bank for 10minutes at midnight, would you open the bank at midnight?
Lehman is saying the potential problem is liquidity, not solvency. We'll see if this is the case.
India has not lived up to its billing as a looming software powerhouse.
I agree - I never thought India was all it was cracked up to be in that respect. On the other hand simple manufacturing focused on local demand with some export to pay off imported capital makes sense. It is the Tata model & has worked for them.
I.T. is weird.
I.T. is weird.
Hey! I resemble that!
"India has not lived up to its billing as a looming software powerhouse."
IT outsourcing has never been about American Innovation v/s Indian Innovation but rather about Productivity per USD. As the USD shrinks, this levels the playing field. Expect less outsourcing.
The innovation debate is a totally different issue and will become dominant when the best Indian minds decide to stay in India.
OT: Dell will close it's Austin Tx laptop plant and lay off 8,800 employees worldwide (I believe I heard 4,800 in Tx but the TV is in the other room). I post this for Texas readers to comment on effect.
Jim
Jim,
I would say of all riot causes, the concern over feeding your family is a motivation that could morph dramatically into large scale social unrest. It is simply fundamentally different than the other examples you give.
Your last three post of inappropriate analogies have shifted away from your earlier more data oriented posts and my interest in them has subsequently waned.
China may have a bright future, but both you and Jim Rogers hold irrationally optimistic views in my opinion.
The Chinese leadership's obsessive control of information and the highly structured curriculums they are developing in their new and impressively funded universities are not conducive to innovation. They (the leadership) think they can have the innovation without the openness and rebelliousness that accompanies it.
I understand many of these deficiencies operate in the US but to equate them in magnitude across countries is just dishonest.
I can say from personal experience that most Chinese and American academics (well, engineering and science type academics) look forward to a period of increased collaboration. But, I also know that in both countries, the view of the few academics is very different than that of the ruling leadership. Academics are often a hopelessly optimistic group regarding politics.
Ok, lets see if I got this economy thing right.
We are living in an era of high leverage, phony accounting, funny money, and little to no regulation.
Any wonder what is driving this crises?
Ella - I don't know if you're new here but we are all in favor of 'pony accounting'....
Oh my bad you meant PHONY accounting.
Never mind.
This doesn't worry me much. The tooling now necessary for manufacturing most things, be it cloth or advanced metals, are miniature compared to 40 years ago. We can tool up rapidly when needed and with a generation newer facilities than the Chinese or the Indians (who still prefer to use humans where machines would be a better option.).
That's already not true for some things. Why does China make refrigerators in the U.S.? Because shipping air is not cost effective and has not been for years.
Not with a microlending fund, it's not.
No dryfly not new. Sometimes I am too busy to more then read the comments.
Maybe we all need to know just how many pony's there are out there.
Heh, you know in Bush's case, this could be correctly rephrased as:
My Road or the High Road.
I wouldn't be surprised to find some in the US and abroad making Jim's 'sour grapes' argument, but this is an odd place to make it.
There are 6 billion people in the world, and we're still fu*king like rabbits. We can't all be filthy rich.
We're going to drive the dollar to a penny or less, and force the world to do business with us - regardless of debt. The days of dollars as a world reserve currency will be finished.
To manage the crisis when that event hits the fan, we'll all merge to a single world currency. Except it won't be currency, in the traditional sense.
Children will be issued "credit numbers" at birth. Your "birth credit" will already be maxed-out (to pay for food, education, healthcare, and state-sanctioned information and entertainment until you join the workforce). Once you have worked for 20 years, your balance will be 0 credits, and you'll spend the next 15 years saving your "earned" credits to pay for retirement. having more than 1 child will be "frowned upon", as it is in the Chinese model. Right-to-lifers will also be dealt with according to the Chinese model.
During the transition, over the next 20 years, the emerging market worker will move up, and the American worker will move down. The American middle class will eventually disappear, as it cannot be supported by the global market.
The average home in America will look more like what the average home in any emerging economy looks like today.
Trading in "Markets" will be a parlor game for the ruling class.
Then again, maybe not. Scary thing is, it wasn't too difficult to imagine.
6 Billion and booming.
MA,
There are going to be feedback effects in there along the way - aka the four horsemen - going to be a bumpy ride that may dramatically alter the end stage.
Great we ended with the quarter down..Funny to see China cliff diving tho...and who was it that said the rest of the world would carry on like nothing ever happen?....But I also worry about the Trillion Dollar loans we have with them....yup those are not going to be write offs'...nope...that is going to be Inflation 1970's style, you think that food and gas is costly now..Hehe you ain't seen nothing yet.. We are still in the first inning of many many interesting times ahead....now where did I put that leisure suit, and Glass Bong.
Container traffic mid-west:
Down 22% in 2006.
Not just LA but Seattle also.
Most trains carrying domestic, not
import.
One customer now imports 1 can a week or
two, from a high of 9 to 12 a week.
If you live in LA or Seattle or along
the route from either to Chicago, look
do the cans on the train say:
China Shipping,Yang Ming, Hanjin or
do they say JB Hunt, Schnider or
Swift Transportation ?
Jim writes:
"The Chicomms really really don't understand that Taiwan is gone from them forever."
LOL. Yeah, those "Chicomms" (note the insulting term) don't...
Oh sorry, I forgot to waste a lot of words by saying "Mainland Communist Chinese leaders as opposed to Taiwan Island Chinese." Jeez, are they not Chinese, are they not communists? Is not Chicomm an appropriate abbreviation? The only reason someone would take this as insulting is because they wish to obscure the negative connotations. As a olde school conservative I've learned to ignore the attempted insults of calling some Republican and/or administration policies conservative even though they violate every precept of the creed. Likewise, they are Chicomms, live with it.
quackprogrammer: Don't underestimate how much of software "development" in all kinds of application domains is maintenance, solving "commodity" problems with off the shelf systems (corporate IT/database/workflow), and handling of issues and support. All of that is pretty close to services.
Don't worry, we have containment. Containment to planet Earth.
NorthernSTeve,
Is it possible that we already have enough big screen tv's?
And how many computers do we have in our houses? Way too many in mine and the new ones are far more powerful than I usually need.
Rob, Chicomm is about as apropos as "Jap" these days, for similar reasons.
It's looking like around the world we have the phenonema of a gambling speculative fever (big credit bubble) resulting in winners and some losers and a lot of loss heading towards taxpayers around the world.
Under this unusual situation, perhaps the seemingly impossible idea of taxing the winnings like a special windfall retroactively might make some sense in spite of the challenge of carrying it out.
In the US for instance it could take the form of a retroactive real estate windfall tax for 2007, 2006 and 2005 with perhaps rates such as an extra 10 percentage points in 2007, 8 in 2006, and 6 in 2005.
Of course, not all taxpayers that won in the national casino of houses still have the money. But that could be determined in audits.
I don't make such a suggestion lightly. There might be further ways to refine this.
Any ideas?
Troy writes:
Rob, Chicomm is about as apropos as "Jap" these days, for similar reasons.
Calling a spade a spade is also incorrectly considered an insult. The phrase dates to ancient Greece where it was calling a pig trough a pig trough. An error in translation made it spade, a digging of troughs implement. I refuse to bow to some artificial political correctness. The thing you are imagining are related are Jap and Chink. Both are deliberate and inappropriate terms. Chinkcomm is nasty, almost as nasty as Neocon.
SteveOfTheNorth writes:
Container traffic mid-west:
Down 22% in 2006.
Not just LA but Seattle also.
What does this mean? Is that an intermodal shipment number from two years ago? Or, is this intermodal cargo that may have gone through the newly opened Price Rupert terminal in Canada?
Throughput at the ports of entry are simply not down that much, right now. March may be ugly for Asian imports, but the numbers aren't in yet.
Things have slowed (2007 v 2006 and 2008 v 2007), but it hasn't reached OMFG!! Where'd the cargo go?!?!?! levels.
Well the bash-the-Chinese contingent is obviously alive and well. I remember when Japanese economy was rising so fast the US was getting scared and we were told all sort of horror stories about them. Regimented; lack of innovation; too ruled by authority; closed markets so we couldn't compete, etc., etc., etc. When Japan turned out not to be the boogeyman its detractors were portraying it to be, things died down and we began to acknowledge and admit its strenghts (as well as its weaknesses). Lots of people get scared when confronted with a fast rising economy. Feel very threatened. Pick all sort of flaws to comfort themselves, etc. Seems oddly like the attitude of old money to nouveau riches=---filled with scorn and deprecatory comments.
Dawg: Why not write "Chinese communists"? Is that too exhausting for you? (I bet you watch O'Reilly and read the Washington Times. Did you support invading Iraq? Is Rummy a hero? LOL).
I general, I would worry about China's might if there could a CR blog. As long as bloggers go to Gulags for many years for attempting this, they will never be an economic thread much like the Soviet Union never was.
Regarding the stock market this is an omen to me that all non-US markets corrected much stronger than us. The table has turned in our favor, IMO. That said, I do believe many economies will continue to prosper more than they have in the past as they emraced a more free-market economy and more spiritual and economic freedoms. This kindof creates a positive feedack.
O-Joe
I'm am new to this forum so, perhaps it's just me, but why do many of the 'handles' reek of machismo like that scene in Reservoir Dogs where the thugs fight over who gets to be called "Mr Black" or "Mr Silver"?
Rob Dawg, I take issue with your contention that political power is so concentrated in China. It seems that you're disregarding a political apparatus that like CCCP before reaches down many levels thereby creating in essence a tremendous drag on those in the Politburo.
World bank sees China's growth rate down to 9.7% in 2008 from 11.7% in 2007. I tell you China is facing disaster. This will finish off those "commies" and their fake prosperity. Just watch 'em fall apart. Just watch. And there'll be rioting in the streets, not over just cooking oil, but the lack of sweet and sour pork too. LOL.
Interesting comments. The current dollar to china renminbi is 7.0135. Based on their most recent revaluation, the annual rate was close to a 25% gain. Unfortunately, I could not find the link on Bloomberg. Anyway, I expect that China will revalue the renminbi at 5 after the Olmpics and ecport out inflation back to us. It will look fine to them in the short term but come back to harm them as their customers goe to cheaper manufacturers.
As far as IT, it is shocking to me how cheap IT (sw, hw, etc) has become. With virtualization, everything is repeatable and replaceable. My brother outsources his IT work around the world on a project basis and gets great results. India has done well with outsourcing but will have to do more innovations and business strategic growth. Will they have enough time before other countries catch up, I don't know. I do know that their infrastructure is improving but they still have energy, water, sewer, communication, and other infrastructure issues to address. Infosys and Tata are starting to grow into value added services from their outsourcing roots.
Either way, I think India and China are the new two economies to watch.
jim, world bank also has a poverty line for china at 888rmb. do you think 8 is an auspicious number? have you tried living on $.3 per day even outside shanghai? how many people in china die every year in coal mines? do the 500m that do not have access to clean water know that they are about to become the leading consumers in the world? how many bridges does china build every year? how many of the top 50 suspension bridges are in china? what do we say about japan bridge building of the 90s? what is the effective oil price inside china? how long do you have to wait in cue to fill your car in guangzhou? how big are the chinese bank NPLs? how much of the china's reserves are earmarked for huijin? has any country in the post war history had investment of more than 40% of GDP? has any country in teh post war history had consumption lower than investment? what is the credit/gdp ratio in china?
i sure hope you have answers to these questions. otherwise your being early won't count for much. if there is any one-way trade in the market at the moment, it's the "long chinese yuan" trade.
I think you are right when you say that this a "reality" check Chinese Style. Cab drivers where buying up stocks as if they knew what they were doing. It was only a matter of time.
I don't think this will impact the US in any way as far as inflation is concerned. We will keep buying from them regardless of how much their stock market or economy drop. Doesn't make a difference.
Dny
This is starting to look like what happened in the early 2000s, when companies started borrowing money with no identifiable purpose -- the purpose was turned out to be to ride out the upcoming storm -- the purpose was to have money around, for future operations, to stay alive as a going concern.
Can I haz endorsement of my balance sheet, if I act now?