Archive for the ‘China’ category

Beginning To Look Back

January 11, 2017

President Obama gave his farewell speech yesterday in Chicago. Pundits suggested President Obama wanted to write his “legacy” before the Trump Administration has a chance to eviscerate it. George W Bush, when asked in the ashes of his failed Presidency, what would his legacy be, replied to the effect, “don’t know. History will determine that and history takes a long time”. Hmmm.

Comparing the two men and their terms in office, President Obama would look hands down the more successful President. But with whom would you rather have a beer?

George W Bush, despite his wealth and familiarity with the moneyed class, seemed such an easy going person and a comfortable person to be around. Barack Obama could also at times display a friendly look but too frequently flashed a message of disdain or intellectual arrogance.

President Obama appeared not to suffer fools well. And in Washington there is no shortage of self centered, free loading, bureaucrats and legislators only too ready to claim something based on half truths or no truths at all.

President Bush was quite correct in saying history takes a long time before it renders a clear verdict. President Obama has much to be proud about but the repeal and replace of Obamacare may obscure his bold (but not bold enough) steps towards universal healthcare coverage. His efforts towards renewable energy and other quality of life issues may confront an unsympathetic Congress and Presidency once Donald Trump is inaugurated. Obama’s 8 year efforts around immigration reform, voting rights support, and inclusion will be an afterthought with the new Administration. What will remain in 8 years is open to question.

On the foreign stage, IMO, President Obama has diagnosed the Middle East (including Israel) correctly. One can argue whether the Arab world should offer the peace branch to Israel or Israel should initiate a sincere proposal first. But until the Arab world settles its power and Islamic sect differences, there is little reason to expect success. The next Administration is likely to take sides, picking which ever group seems most useful short term. Hmmm.

With respect to China and Russia, President Obama rowed against long held State Department views of a proper world order. China and Russia both have a different view, not surprisingly placing their country’s interest ahead of other countries including the US. President Obama diagnosed Asia and in particular China as the country to watch and to update US China foreign policy accordingly.

China is far wealthier and more populated than Russia. Maintaining government control requires meeting the economic needs of its 1+ billion head population.  Unfortunately it will not be easy task for China to continue spreading new wealth to Chinese peasants without 10% growth each year.  Authoritarian countries usually look for outsiders to blame when domestic policies falter.

A fair President Obama criticism might be that in all matters, his preference for “no drama” and “no theater” probably kept him from communicating effectively to the American people in terms they would understand. Whether the issue was healthcare where America spend twice as much as the modern world, and do not provide coverage to all Americans, or where America’s defense budget is 10 times as large as the next biggest spending country, or where America spends more per student on K-12 education than any other country, yet produces test score results in the middle of the pack, President Obama shunned any attempts to bring about change by dramatizing these facts.

President Obama will, however, be remembered from day 1 as a decent man with a smart and gracious wife who lead a White House life, with their children, which was above the fray but not aloof. President Obama’s few emotional occasions dealt with tragedies like the Newtown Elementary School shootings, not whether the Dow Jones Average reached a new high.

Strangely some of President Obama’s most vocal critics come from the African American community. And some of the unkindest words reference little or no progress in jobs and opportunities. Using a football analogy, offensive linemen can out block defensive linemen for just a few seconds creating an opening for a running back. If the back is not ready, or does not run through the opening quickly enough, the running back will be caught for no gain. I wonder why the African American community does not see the chance they had and squandered?

The next Administration will initially be graded in comparison to President Obama’s record. Soon however, Trump Administration policies and unforeseen world events will shape America’s history and the Obama comparisons will cease being relevant. Then historians will have their chance to cast a more informed light on legacy.

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Getting A Grip

January 23, 2016

News reports have been sounding a lot like “chicken little” recently. To be fair, news reports are just that, they are mostly reports of statements made by politicians and occasionally by those who claim to be financial experts.  If the report is sensational and full of sound bites, all the better.

For example, the Presidential candidates have attributed every foreign or domestic situation as either the fault of a President Obama policy or the lack of one.  Financial gurus are unable to explain the large drop in the markets and alternate between “China is not growing fast enough” to “oil prices have dropped too far and too fast”.  Between the politicians and the financial experts, what is one to do?

Let’s begin with China. China’s growth has been spectacular to be sure. But it is useful to note that China did not build a better mouse trap and the world beat a path to its door.  Rather, China managed to build an export economy by converting uneducated and untrained peasants into productive workers making everything from dresses to gym shoes to furniture etc., items already being produced somewhere else in the world.

China’s growth resulted from producing goods at a low cost and selling it to other nations whose citizens wanted those items. For many of China’s customers, it was good products at lower prices. For others it was products they could finally afford. China’s growth rate averaged about 10% per year, a growth rate which is mathematically unsustainable for extended periods. No one should be surprised that these heady days had to end.

News reports indicate that China is shuttering many of its factories. This can only mean that world demand for more Chinese produced products in not there. While some other low wage countries are probably taking some of China’s share, the main factor is the world is just not buying as much as it did before. In other words, the slow down is not a producer problem but instead a consumer problem. So forget about blaming China and start asking why aren’t consumers outside the US buying more?

But what about oil, isn’t low price good news? No, we are told. Oil has dropped to much and too fast. Hmmm. Of course the price of oil is mainly the result of supply and demand, and right now the world’s oil producers are bent on pumping and selling at what ever price prevails. Hmmm.

OPEC has had life quite comfortable for oh so many years, raising price when ever the urge seemed right. Oil sales were the primary engine for growth in the quality of life for their citizens. Then along came fracking and the Canadian Tar Sands, spurred on by the high price of oil. Hmmm.

Suddenly the supply side was tilted above the prevailing demand. And as any capitalist knows, when there is more of something than what consumers want, the price goes down. The Saudis, for reason of their own, chose to keep pumping and not reduce their output. The Saudis said they did not want to lose “market share”. Hmmm.

The good thing about capitalism is while a supplier can act irrationally, for example lowering the selling price below the cost to produce, there are consequences. One the Saudis have found is that maintaining market share has not prevented oil revenues from falling.  Revenues have fallen so much that their national budget has a deficit now. Hmmm.

While it might seem appealing to gloat at the Saudi misfortune, one might be wise to hope that they are able to adjust their national budget (which means reducing entitlements for their citizens) and avoid popular unrest.

Just imagine that another Sunni group replaces the royal family and what chaos might ensue (like when Saddam Hussein was toppled in Iraq). Imagine if the new rulers were called ISIS (they are Sunnis too).

There could be other unanticipated consequences of prolonged low oil price. Those companies and countries that have invested in new capacity have done so by borrowing. With income far lower than expected, the chance of default is high. Hmmm.

I wonder whether these lending banks are too big to fail? Hmmm. And who looks demon-like now over the XL Pipeline?

Adam Smith’s “invisible hand” predicts that natural events will correct supply-demand imbalances, and argues governments should not intervene. Keynes, on the other hand, recommends government spending to restart a sluggish or stalled economy. For the past 6 years, by default, the US has followed more the invisible hand approach. In effect the Country accepted higher unemployment for a longer period in exchange for unremarkable but steady growth. Said differently, there is no “bubble” in the US economy to burst now.

In comparison to the rest of the world, except China, the US economy is performing the best. Hmmm.  I wonder what the GOP Presidential candidates will say about the economy?

Dick and Liz, Truly Exceptional

August 30, 2015

Saturday’s Wall Street Journal carries a half page op-ed column by Liz and Dick Cheney. The father daughter team went way beyond attempting to rewrite history in their piece. One is tempted to believe their column was really an attempt to hawk their new book due out in September. Seeing it in any other light would either bring further discredit to former Vice President Dick Cheney’s long years of public service, or more cynically, underscore the failings of those who cannot bridge world changes and insist upon living in the past.

The Cheney’s column, titled “Restoring American Exceptionalism”, is roughly constructed in three parts. They open with a claim that American Exceptionalism has its roots in the founding days of our Country. Hmmm. The Cheneys do not belabor this claim and immediately move on to slamming President Obama for abandoning Iraq and making a “bad” deal with Iran.

The Cheneys omit any explanation why President Obama was in a position to remove US troops from Iraq in the first place, and say nothing about what a mess Iraq became after President George W Bush and Vice President Dick Cheney invaded and occupied Iraq, thereby opening Pandora’s Box. Probably just a minor detail in Dick and Liz’s opinion (or an inconvenient truth in many other’s minds).

By this point, Dick and Liz are full throated in their denunciation of President Obama over the Iran nuclear deal. Their argument reads like the words were from AIPAC or maybe even Prime Minister Netanyahu. As you might guess, the Cheneys offer no alternative path or explanation why no agreement does not lead to war while an agreement does. Hmmm.

After making a “President Obama – Neville Chamberlain” comparison, the Cheney’s catch their breath on reminisce over the successes of WWII and post war recovery, and of course, the winning of the cold war. I guess these are things “exceptionalsim” is made of.

It is doubtful any one can accuse the Cheneys of being unsure of their visions nor hampered with too many facts. Simply check out PNAC (Project for the New American Century) begun in 1997.  Cheney’s view of the world (especially the Middle East) and the unbridled use of American military power is on display. What’s so wrong with using other people’s children to fight on the ground? It’s called an all volunteer Army and a great thing when there are not so many other civilian jobs.

The kindest light that can be put on this column is it represents a crass attempt to merchandize a book. The Cheneys show complete ignorance of true American Exceptionalism and instead attempt to conceal America’s foremost foreign policy failure (Iraq War) with shameful comparisons to former great Americans. George Marshall, Dwight Eisenhower, and Harry Truman would spin in their graves if they could read this column.

The Middle East (especially Iran), China, and Russia all represent complex challenges for America foreign policy. One foreign policy approach is unlikely to work for all. Selecting the best approach for each will be both difficult but critical to maintaining a peaceful world. Negotiating by laying down ultimatums is the quickest way to failure. Negotiating in good faith may not always produce desired results also but good faith is the only way win-win outcomes can be forged.

The Cheneys don’t recognize this alternative.

Stock Market Woes Again

August 25, 2015

Last Friday the Dow Jones Average fell some 500+ points in one day. That is a lot. Over the weekend, pundits breathlessly characterized the fall as “correction like” but technically not a correction. Monday was worse for China are the US stock markets dropped over 500 points.  Hmmm. What were these markets trying to say?

Stock markets are places where most people pretend to make investments (buy or sell stocks for example) when in reality they are making “bets” (wagers). The bet is that an hundred dollar investment will in a short time be worth $200. The thinking goes that when the stock reaches $200, the investor will sell and pocket a profit of $100. Pretty simple and easy to understand how one would make money.

The “bets” can drive the average stock price up and up.  Remember, when the price rises, someone has also decided to sell thereby taking his/her profit.  At some point the average price is viewed as too high and then the market physiology reverses this process and prices drop.  Normally the drop is just a little, these past few days it has been a lot.

Not so long ago (ok, well maybe it was 50 years ago), individuals and conservative investors preferred dividend bearing blue chip companies.  These companies were stable and regularly paid a dividend.  The overall quality of the company investors chose was important.  The stock value appreciated but only slowly, so investors tended to hold onto these stocks for a long time.  The investor made money from dividends and a little appreciation when the stock was finally sold.

Not any more.  Investors want to make money much sooner and quarterly dividends are not enough. Investors care little about the long term prospects of companies they invest in.  It’s all about how much can be made now.   Putting things in perspective, most banks are paying less than 1% on savings, yet stock market investors are hoping for double digit returns (although they will settle for 5+% if they must.

The “stock market industry (the wide range of media, analysts, and financial advisors)”, works hard to make the investment process sound complicated, almost seemingly to make us look the other way when these panics occur. Potential investors are told to look (with the help of an advisor) for “undervalued” stocks or stocks in certain fast growing fields like energy, transportation, or maybe real estate. Investments in those fields are most likely to appreciate in value future investors are told. Advice abounds that conditions remain favorable for growth and it is not too late to “get in the market”. Hmmm.

Compared to China, Wall Street caters more to the “institutional” investor rather than the average individual (mom and pop) investor. Mutual funds as well as hedge funds make most of the Wall Street trades, and make them electronically. Ironically, empirical data shows that funds which mimic the overall averages of sectors or the market as a whole do as well or better than investments by individual expert’s picks. So, indexed funds must be safe? Hmmm.

Lets look at China which is turning an unsettling light upon stock markets. In China, most investors are individuals who make their own trades. The Chinese stock market process has looked more like a casino where “you place your bets and pick up your winnings”. “Don’t have enough money, no problem, just borrow and invest”.

With the overall Chinese economy having been growing at almost 10% per year, experts could predict with some certainty that stocks would be worth more next year than now. Growth rates of 10+%, however, are simply unsustainable and while China has enjoyed over 10 years of this type of growth, China’s growth rate has receded recently to the 7-8% range. While still the best in the world, pundits worry that China’s growth rate will fall further.  What about the possibility that the market is already over priced?

The stage has been set. China’s stock market, loaded with borrowed money and with investors who have had no clue why stock prices were as high as they were, are poised to panic. Like with the US market, the heavy hitters all play the same game. “Get in the market first, get out of the market first. leave the losses to others”.

Last into the market and last out of the market is a prescription for losing a lot of money. Accordingly, when market watchers see the market go down, the urge to panic and sell sets in.  How far of a drop the Chinese market must endure before the “correction” is complete is unknown. What can be counted upon is that market makers will reenter the market at some point and be set to ride the market up again, all the while encouraging average people to invest. The many who have been investing with borrowed money (especial if buying on margin), will likely be wiped out during the current “sell phase”.

The market’s herd mentality, however, can not be denied.. If an investor gets out early, he/she can watch the stock drop further and see others try to emulate the “pros”. Even if the investor gets out too soon, as long as the market does follow him/her to lower levels, these investors will be poised to jump back in and benefit more from a rising market.

The moral of this story is there are no market fundamentals, indicators maybe, but no primary calculations which can inform on when to buy and when to sell. Further there is only money to be made if there are buying and selling cycles. If stocks are high (as measured by market averages and specific stock’s historic record), sell and put money aside. When stocks seem low, buy and hold until stocks seem high, then sell and count your profit. The obvious problem is recognizing the high point and the low point.

Listen carefully what the pundits say over the next few days. Many will tie the drop in US prices to the drop in China’s stock market or China’s overall growth rate (the fear card). This is pure malarkey. The US has a much more diverse economy and while China is an important trading partner, it is only one of many.

A far better explanation lies in the herd effect (one sells, we all sell) and the reality that a steep correction (large drop) just creates more room for speculators and market makers to make a killing on the way back up.  Hopefully your financial advisor is not recommending “rebalancing your portfolio” which of course involves selling.  The wise investor is already “diversified” and should be able to wait out this current Wall Street chill.

Lastly, the pundits may predict tough times ahead because a slowing Chinese economy will have knock on effects in the US.  The notion is that US business earnings will decline.  Hmmm.  Maybe but just how much?  Some corporate earnings may be less with a slow or not growing China, but that should be only a small fraction of US companies.  And more to the point, betting on future earnings growth should remain unchanged.  Without a doubt there will be confusion around a slow down in China, but US fundamentals seem as sound as the ones that got the Dow Jones to 17,000+ in the first place.

Parallel Universes

August 14, 2015

A New York Times article today discussed the Obama Administration’s preparation underway for the President’s upcoming meeting with China’s President Xi Jinping. Not surprisingly the Administration is taking the meeting seriously and the Administration wants to be well prepared. There are trade issues, openness of southeast Asia sea routes, terrorism, cyber security as well as expansion of cultural ties to name a few. Crowded agenda it would appear.

The article, however, focused upon the readiness of President Obama to discuss “human rights”. Hmmm.

Of course human rights are important. One cannot help but wonder, however, why the President of a country which operates Guantanamo Bay detention center where prisoners are held with out charge indefinitely and others who are cleared of charges and still kept imprisoned, can speak to human rights?

The Chinese are dealing with a billion and half citizens and have chosen to impose strict regulations on public displays of dissatisfaction. Anyone who has visited Beijing, Xian, or Shanghai would have found these cities quite fascinating and easy to move around in. Visiting China cannot be confused with cold war era visits to the Soviet Union where “handlers” were assigned to visitors and every effort was made to limit contact with Soviet citizens.

China can certainly make improvements in free speech and the plurality of their political system (China is a one party country). The question is why should anyone expect that a two party China would take a different stance on claiming sovereignty of the South China Sea? Why would a pluralistic China decide to cut defense spending or crack down on cyber activity?

The principles that have worked so well with the US, such as free speech, rule of law, free and open elections, and capitalism should in time be valuable to China too. The Chinese government are competent leaders and will in time find the utility of many of US customs…  when they are ready.  Look at what happened when the US pushed hard for Egypt to adopt democratic elections and imposed a constitution on Iraq.  Unintended consequences.

With the death penalty, Guantanamo, NSA spying, Ferguson, and guns in the hands of just about anyone who wants one, the US ought examine itself before it tries to advise other countries.

Delivering The Mail

April 16, 2015

In an amazing feat of audacity, a Florida postal worker flew his ultralight from Harrisburg, PA to the steps of the Capital in Washington, DC. The pilot landed his craft without incident and was immediately arrested. The pilot explained that he was protesting the obscene amounts of money currently transforming the US political process. I guess this 60 year old individual feels strongly about the corrosive effect of unlimited money.

Listening to the evening news, the postman’s campaign financing protest was lost in their exploration of how anyone could have flown so close to the White House and the Capital. And if that was not enough, the Press reported that the postman had describe his intention about a year ago and had been contacted by local newspapers and Federal investigators. Money in politics, I guess, is both not newsworthy or attention getting for the Feds. Hmmm.

For Russia and China, this was probably a non-event. Would either country be pushed to the point of taking military action against the US, they could employ submarines, long range aircraft, and intercontinental missiles.

But for any of the dysfunction Middle East regimes, this incident may have been a wake up call. Al Qaeda wrote the first chapter in unconventional warfare with the attacks on the World Trade Center. Now their successors have been given a demonstration on how a small, unobtrusive aircraft could deliver a knock out punch to both the White House and the Capital.

Hmmm.

Mutual deterrents kept the cold war powers at bay even though there were conservative war mongers in the capitals of the major powers. With the emergence of Muslim radical groups who apparently possess nothing they wish to protect, the major powers have no mutual deterrent tools to combat them.

One would hope that the light bulb would go on in Washington, Moscow, and Beijing that it is high time to move beyond the cold war, and work together to contain, defang, and ultimately domesticate these radical Muslim threats before they possess weapons of greater mass destruction.

Understanding A Better Deal

April 1, 2015

The 24th hour came and went last night (actually early this morning Swiss time). The sun did rise at its appointed time a little later. What didn’t happen was an announcement that the major powers and Iran had reached a deal on nuclear weapons. As in all negotiations, the deadline is simply a marker that can be mored if the parties choose.

It remain an open question in the absence of an agreement whether negotiations will continue or whether Iran will walk away, persevere, and continue to build its nuclear capability.

Critics of the current negotiations call for holding out for a “better deal”. When asked what a better deal looks like, these critics offer larger and more significant dismantling of Iran’s nuclear industry (even the parts useful for peaceful nuclear energy) with no quick concession from the world powers on sanctions. Hmmm. Doesn’t sound exactly like negotiations to me. These positions sound exactly like “demands”… do it or else.

In fact critics of these negotiations, harken back to the hubris days leading up to invasion and occupation of Iraq. As with the Iraq WMD demands, cessation of negotiation with Iran can lead to only one place, another armed invasion in the Muslim world.

Critics argue, however, that war is not inevitable. They claim Iran will finally see the error of its ways and agree to tougher terms. Hmmm.

Why would the US, France, Great Britain, Germany, Russia and China not have already pushed for tougher terms and why would they suddenly see new light now? Doesn’t any think Iran pushed back?  Never the less critics claim they want negotiations for a “better deal” and tougher sanctions to boot. Hmmm.

It is likely that the US, France, Great Britain, and Germany see restrictions on Iran similarly. Each wanting no further nuclear proliferation while still maximizing their business opportunities in the Middle East. Russia and China are most likely on a different page. Both countries, of course, want economic benefits, and are leery of nuclear weapons spreading to their Muslim ethnic minorities.  Different than Europe and the US, Russia and China are more worried about precedents for meddling in other countries’ internal affairs. In short they see the economic embargo on Iran as a possible blueprint for ones that could be used against them in the future.

It should not be surprising then that what ever “deal” has been almost hatched might fall far short of what “neoconservatives” or AIPAC might want, but their myopic viewpoint does not include the importance of coexisting in the “real world” where Russia and China play.  These countries are far more important than all the Middle East Countries combined.

A better deal is one reached by the major countries and not one hatched up in Tel Aviv.