Economic gains in the U.S. have been spread less equally in recent years as a result of factors including globalization, technological change, the decline of labor unions, changing social norms, and government trade and tax policies, according to World Bank economist Milanovic.
The biggest single structural defect facing the US economy night now is the widening gap between rich and poor. This is forcing the alleged reformer - Barack Obama - to reshape the U.S. economy thus leaving it more vulnerable to recurring financial crises and less likely to generate enduring expansions.
To all the readers of the Pattaya Mail, I would like to wish everyone a Merry Xmas and a Happy & Prosperous New Year.
A successful asset allocation strategy goes further than just allocating assets to broad asset classes. Allocation within these classes is also vitally important. Unfortunately this is not as simple as following a quantitative model. It is of great importance to have a fundamental understanding of the current situation to start with in order to structure each component of the broader allocation correctly.
A bubble is created when more money flows into an asset than is commercially or structurally feasible or sustainable.
The technology sector has come a long way since the heady market highs of 2000 and yet many investors still treat it with circumspection, thanks to the bursting of the internet bubble and crazy dot com valuations. We believe that the sector has evolved and that much of what was promised in 2000 is now becoming reality.
Some hard (for some people to swallow) facts on China today
With less than 20% of the world’s population, China consumes:
... 53% of the world’s cement
... 48% of the world’s iron ore
... 47% of the world’s coal
... and the majority of just about every major commodity
- In 2010, China produced 11 times more steel than the United States and achieved a New World Record by making and selling 18 million vehicles in 2010
- There are more pigs in China than in the next 43 pork producing nations combined
- China is currently the number one producer in the world of wind and solar power (although they don’t use it themselves)
- China currently controls more than 90% of the total global supply of rare earth elements
- China is the world’s largest gold producer
- In the past 15 years, China has moved from 14th place to 2nd place in the world in published scientific research articles
- China now possesses the fastest supercomputer on the entire globe
- China has accumulated over USD3 trillion in foreign currency reserves - the largest stockpile on the entire globe and is the largest external foreign creditor of the US Government (second only to the biggest single creditor of the US Government which is in fact the USG itself as it issues around one quarter of its debt in internal IOUs to itself!)
- The Chinese consume 50,000 cigarettes every second …
Yet Scott Paul, the executive lobbyist for the Alliance for American Manufacturing, a labour-management partnership, says a 28.5 percent appreciation in the Yuan would create 2.25 million American jobs and reduce the annual trade deficit by USD190.5 billion. He believes that China has declared trade war on the USA and that legislation is needed to protect poor little America against the new bully kid on the block.
This has been greeted with much incomprehension by those who believe that economies develop and markets adjust factors like currencies and interest rates accordingly. Yes, Central Banks like the PBoC and The Fed push back against those responses of the market that they do not like. The PBoC has focused on targeting and setting the CNY exchange rates whilst The Fed has used money supply to undermine their own Forex rates through QE, The Twist and two year interest-free teaser rates on short term money.
Scott Paul refuses to see this, preferring to believe that China’s economic success story is a mere reflection of the competitive advantage obtained by China in the currency debasement wars with American manufacturing and jobs the innocent victims of a brutal trade war. This conveniently forgets the fact that when the Bretton Woods agreement installed America as the global supplier of capital, America’s consumption-driven economy quite rightly developed itself and moved up the value chain into highly skilled services and value added manufacturing, dominating high-tech and finance globally. Scott now wants to drag America back down to complete with third world manufacturing labour.
Forgetting that the RMB has appreciated since the Global Financial Crisis and is one of the few currencies year to date to have strengthened relative to USD, Scott now wants to see markets manipulated in the AAM’s favour to help, artificially, US job creation at this difficult time.
Ignoring that the failure to address American structural lack of competitiveness will only make matters worse and that the US has tried to mask this through QE-driven stimulus and currency depreciation, Scott’s view is that QE is acceptable because it was conducted through American capital markets whereas the CNY rates were set by a Cabal in Beijing.
Conveniently forgetting that FDR, and his Cabal in the ‘30s, sat in the White House setting US exchange rates in the same way that the PBoC do now, Scott who, it has to be said, seems to be a thoroughly likeable chap with a highly polished grin, is very articulate as he rewrites history for a desperate gallery.
However, American voters, American businesses and American workers deserve better than this, used as mere pawns in a game of party politics. They deserve to be able to pin the blame on those responsible for the job losses in America’s high-skilled, high-tech, high value economy and not just on a soft target like a Chinese Bogeyman!
Long-term China observers have often remarked that threats and public intimidation are the worst possible way to try to get the Chinese government to do what you want them to, especially in the name of American party politics which Chinese officials tend to view with great disdain.
Enzio von Pfeil of Commercial Economics Asia is decidedly sceptical: “I’m just not sure revaluing Yuan will necessarily create a Chinese trade deficit because U.S. multinationals account for a trade surplus of USD3 trillion in America’s global trade…China is for free on the hill… anybody gets to beat up on China and you get free election points off China when you are out there campaigning in Oregon or Seattle.”
Robert Roche, vice chairman of the American Chamber of Commerce in Shanghai, says that there are bigger issues: “We really don’t feel that the currency is the big issue… Market access is higher up on the list, national treatment is higher on the list, intellectual property rights (IPR) is higher on the list. This is somewhat of a hollow gesture… By going off on the currency bandwagon, it can get a little bit... off track. We don’t evaluate the China risk every time something changes in China. We made the risk, we’re here, and we’re willing to do what it takes to succeed here, and we react to the different changes in the environment. We don’t do a whole another risk analysis.”
Maybe the self-appointed foot soldiers in the trade war need to do a risk analysis of the damage that could be done if Beijing reacts too strongly to all this. At a time when China is taking some key decisions about its economic future, loose words can cost billions of dollars in a trade war and provoke catastrophic effects for the entire global economy. China is at quite a fragile developmental stage - it is vital for everyone that China avoids repeating the serious policy mistakes that the west has made. This would be easier without such noise and distraction and without such idiotic politics.
Indefinite stimulus cannot work - because it gets less and less effective each time, ultimately becoming counter-productive.
Are hedge funds a separate asset class or a superior alpha generator within traditional asset classes? Or are they simply an expensive fee model for high frequency traders? This debate has raged since George Soros took on the Bank of England (and won). As an investor in global hedge funds and other alternative strategies since the mid 1990’s, we reflect on the changes in our approach, philosophy and implementation.
Markets are all over the place at the moment so what to do? Well, for those that read this column regularly, you know that I am a great believer in putting as many of your eggs in as many different baskets as possible. So, here we go: