The Emperor's Writ
Can the Emperor rule the Chinese economy? Does his write hold sway? Or to put it in more modern terms, can the Chinese stimulus package generate growth enough to replace the loss of export markets?
Beijing has two levers, giving orders to state-sector firms, a heritage of communism, and throwing cheap credit at people, a mark of more modern and proto-capitalistic economic controls. The first may not be working very well. The way you check on confusing and contrived Chinese statistics is to look at the figures for electricity generation. The amount of power produced has fallen deeply from last year. The Baltic Dry Bulk Carrier Index, which shows the movement of raw materials into the maws of China, is up marginally this month, but has sunk beneath the seas compared to 2008. So the state-sector mastodons are not in fact producing that many more goods. Read more »
In Herbert Hoover's presidency, Congress passed a law intended to help the U.S. economy. The Smoot-Hawley act raised tariffs on foreign goods and was signed into law before the New Deal arrived.
Foreign countries reacted by raising tariffs on U.S. goods. The trade barriers were ratcheted up steadily until the outbreak of the Second World War and only began to be lowered again in the 1950s under the GATT agreement, parent of the current World Trade Organization. Read more »
A reader asked what I mean by entrepreneurial Chinese companies; I will share the concept with all. The great majority of Chinese firms have some government link.
But the more entrepreneurial ones have another dominant private shareholder, or a lower-level (city or regional) government link, which saves them from being under Beijing's thumb.
Being incorporated outside China helps. So too does a weighty portion of their shareholding being in ADR form.
This is not a sure protection of shareholders, however. A private-majority company has a better crack at refusing to charge below-market rates for a product (like gasoline) when the state decides that the goal of stimulus via auto sales outweights the profits of Chinese oil companies (which happened last week when the world oil price topped $50 again). Read more »
An Experienced Euro-Broker Speaks
My son the CFA’s first boss came over from
The World Is Flattening
Money is flowing back in to emerging markets thanks to some catch-up by mutual funds. That probably means that we will see further rises in stock markets, particularly in China and its region, but also now in Japan. This is my conclusions from statistics produced by Brad Durham of Emerging Portfolio Fund Report.
Fund flows can predict where institutional money will go, since the fund management battleships take a while to turn their course. And funds copy each other religiously. So far in this stock market rally, the pros have not been big players. Most of the rise has come from retail investors (us!), shown by the relatively low trading volumes. Other inflows have come from short-sellers forced to cover.
Climbing on Commodities
It seems hard to believe, but not long ago, the financial markets, politicians, and consumers were gripped by panic over a spiraling bout of inflation. It was only last summer when the price of oil, in what seemed an unstoppable climb, reached $147 a barrel. Other commodity prices also surged, bringing rivers of cash to commodity exporting countries, but leaving impoverished people, some in those same countries, unable to afford even a subsistence diet. Food riots ensued and experts warned that worse was coming. The end was near.
A crisis did come, but it was exactly the opposite of those predictions. With the financial unraveling that started last fall, economies shrank, commodity prices collapsed, and fear of inflation became fear of deflation. Oil prices sank to the $30s with some experts predicting they would head even lower.
Lessons of flu
Delia the door-person in my building, with whom I interact a couple of times a day, is off with the flu. Panic all around.
Until now, when people tell me in a normal-sounding vigorous voice that they have the flu, I have to keep from laughing. Having had a full-blown case of influenza in late 1968, I was very sick indeed and did not sound like them. The fever and coughing were no worse than a cold, but with a real flu your body goes all limp. Your muscles give way. You cannot stand or move normally and your arms ache from holding anything. Your voice weakens as your body strength's collapses. Read more »
By Frida Ghitis
Is the market really turning around, or are recent gains simply more sleight-of-hand in which our pockets will get picked while we happily look at a shiny object?
Or, changing metaphors, are those real bamboo shoots in China or are they tiny weeds that will quickly wilt and die? China’s purchasing managers’ index, the CLSA, rose in April for the first time in nine months. Lest we forget, there is a real connection between the markets and the economy. Obscure economic statistics can tell us a lot about the underpinnings of the market.
Stock market observers with tell us the eye-popping moves of the last couple of months are a mirage, nothing more than a “bear market rally” destined to revert to painful bear market ways. They elucidate this mostly from reading of charts and other mysterious tea leaves. Read more »
Journal of the Plague Year
It’s back to 2001 or maybe the 18th century. First there was that awful Air Force 1 plane over the
And French financial analyst Martial Godet is telling the world to buy BRIC stocks. To quote Yogi Berra: "It's déjà vu all over again." Read more »