2010-09-30

Andy Xie says yuan is overvalued

In an article about China's problems with the real estate sector, Andy Xie says an undervalued currency is not one of China's problems. In fact, the renminbi may be overvalued.

泡沫破后中国部分房价会跌去九成
中国有很多问题。但低估汇率不是问题。我反而认为人民币可能被高估了。存在升值压力是因为市场猜测美国可能会对中国采取何种措施。近十年内,中国的货币供应量增加了4.5倍。在经过长时间和大规模的货币扩张之后,从来没有任何经济体的货币会不贬值。如果人民币升值预期逆转,资本会巨额外流。这才是对中国的考验,而不是今天的升值压力。
China has many problems, but an undervalued exchange rate isn’t one of them: The renminbi may even be overvalued. The pressure to appreciate comes from market speculation about what the U.S. may do to China. China’s money supply has increased four and half times in a decade. I don’t recall any economy that, after such prolonged and massive monetary expansion, didn’t suffer devaluation. When we see a reverse in the expectation that the renminbi will appreciate, the capital outflow could be massive. That will be China’s true test — not today’s pressure to appreciate.

English link.

The English link translates some of the Chinese, but it is mostly about currency, where as the Chinese article is about globalization and a real estate bubble. Here Andy Xie has the trend right, but since he's not looking at social mood, his timing may be a bit optimistic. Below is the sloppy Google translation along with the Chinese:
While the trade war is unlikely now, the next few years, Sino-US trade frictions may increase. A commodity-specific protective measures will proliferate. Chinese enterprises will become increasingly difficult for independent development in the United States sell their products. In essence, the Sino-US trade will become increasingly concentrated in the United States multinationals. Obviously, this is not good news for Chinese companies because these companies eager to establish their own brand, or establish their own distribution channels in the United States. China might react to restrict U.S. multinationals in China business. Although the bilateral trade will continue to develop, but growth will slow sharply. I suspect that in the next decade, the pace of development of bilateral trade may be less than half of the past.

  Sino-US trade friction signs that global trade will slow down. This may be a good thing. Over the past 20 years, as multinational companies will shift production to developing countries, global trade growth rate is the world's economic growth rate of 2 times. Most of the production have been completed to transfer the transfer. The remaining production is difficult due to the transfer of political interference. Future global trade in goods may be synchronized with the global economic growth.

  For a long time, globalization has both the developed and developing countries is a win-win. But we have no such feeling. Developed over the years to enjoy cheap goods, since the unemployment, the income of the developed countries face the problem of suffering. Developed countries, the future looks worse.

虽然眼下不太可能出现贸易战,未来几年,中美贸易摩擦可能加剧。专门针对某种商品的保护措施会激增。中国企业会越来越难以在美国销售它们自主开发的产品。从本质上讲,中美贸易会越来越集中在美国跨国公司中。显然,这对中国公司来说不是好消息,因为这些公司渴望树立自己的品牌,或者建立它们自己在美国的分销渠道。中国可能会作出反应,限制美国跨国公司在中国的业务。虽然两国贸易将继续发展,但是,增长率将大幅度减缓。我怀疑,在未来十年内,双边贸易发展的速度可能还不及过去的一半。

  中美贸易摩擦的迹象表明,全球贸易将会放缓。这可能是好事。过去20年来,由于跨国公司将生产转移到发展中国家,全球贸易增长速度是全球经济增长速度的2倍。大部分可以转移的生产都已完成转移。其余的生产由于受政治干扰而难以转移。未来全球货物贸易可能与全球经济同步增长。

  长期以来,全球化无论对发达国家,还是发展中国家都是共赢的。但现在已经没有这种感觉了。发达国家多年来享受廉价商品,现在由于失业,发达国家面临痛苦的收入问题。发达国家的未来看起来更糟。
With regards to real estate, Xie sees a collapse in real estate prices, by as much as 70-90%. China will have to raise interest rates soon, he says, but if property prices decline, the hot money will flow out of the property sector. Although Xie doesn't represent the thinking of the Chinese government and regulators (though there are some similarities), he does offer a China-centric view of the Chinese economy. The U.S. press, including Nobel Prize winning economist Paul Krugman, tend to look at China as if it was just a manufacturing hub.

Also interesting is how all this plays into the views of Liu Jun Luo and Song Hongbing, of the U.S. using its currency (along with other tools) to retain its position as the number one economy. Liu has predicted that the renminbi could collapse, along with all the other currencies of the world, to as low as 20 to $1.

And the trade war ball gets rolling...

House passes bill to urge China to revalue currency
By a 348-79 vote, the House approved the Currency Reform for Fair Trade Act, which gives the Commerce Department authority to impose import tariffs on goods from countries that manipulate their currencies to deflate them artificially.
Now that the U.S. is officially in the war, expect everyone to pick up the pace.
Brazilian Finance Minister Guido Mantega said this week he feels a quiet "currency war" is under way as nations try to maintain the competitiveness of their exports. Capital and investment are pouring into the faster-growing Asian and Latin American economies, putting upward pressure on those currencies. If China's yuan doesn't adjust to those dynamics, other countries are forced to try to keep their currencies cheaper as well — or risk losing ground to Chinese manufacturers.

Japan took the most overt step when it recently intervened to try to halt a steady rise in the value of the yen against the dollar, but nations such as Colombia and Peru also have been buying dollars to try to stem the appreciation of their currencies. Korea and Taiwan have been upping their holdings of foreign reserves, and officials in Brazil — whose currency has spiked more than 30 percent against the dollar in the past year and a half — have said they might need to become more aggressive.
What does the bill do exactly? Here's Reuters:
WHAT THE BILL DOES

The legislation essentially clears the way for the Commerce Department to apply countervailing duties against imports from countries with "fundamentally undervalued" currencies.

The bill's key element instructs the Commerce Department that it may no longer dismiss a request for countervailing (or anti-subsidy) duties based on the single fact that exporters are not the sole beneficiaries of a particular subsidy.

In other words, just because Chinese domestic manufacturers may also benefit from currency undervaluation, the Commerce Department could still consider it an export subsidy.
What is the Chinese response?

China says U.S. yuan bill violates WTO
In response, the official Xinhua news agency quoted China's commerce ministry spokesman, Yao Jian, as saying: "Starting a countervailing investigation in the name of exchange rates does not conform with relevant WTO rules."

The lawyer-like statement was a measured response compared with China's reactions in other disputes this year, including U.S. weapons sales to Taiwan, when Beijing froze military contacts with the United States.

"I don't think China will have any dramatic reaction to this bill's passing," said Jin Canrong, a professor of international relations at Renmin University in Beijing, who specializes in U.S.-China relations. "China wants to preserve the stability of overall relations."
Appealing to the WTO just escalates the situation. Not because the U.S. would view turning to the WTO as an escalation in and of itself, that's the way countries deal with trade disputes. It would be an escalation because the declining social mood will eventually lead Americans to ask why the U.S. belongs to the WTO.

Perhaps the best response is to say and do nothing. Declining social mood is going to keep pushing this ball forward and the only way to prevent it from concluding with the dissolution of the WTO and a permanent plunge in global trade (if we have passed a grand supercycle peak and have entered into the worst decline in social mood in 200 years) is for one or more countries to refuse to engage in tit-for-tat behavior.

There's a small possibility of the U.S. stopping this trend. House Republican leaders voted against the bill (Boehner, Pence, Cantor and Ryan), along with many of the more famous Republican members (Ron Paul, King-IA, King-NY, McClintock, even Bachmann), and Republicans made up three-quarters of the opposition—although a majority of Republicans still voted for the bill.

More evidence that Mao was correct to prefer Rightists and Republicans?
Chairman Mao: Those questions are not questions to be discussed in my place. They should be discussed with the Premier. I discuss the philosophical questions. That is to say, I voted for you during your election. There is an American here called Mr. Frank Coe, and he wrote an article precisely at the time when your country was in havoc, during your last electoral campaign. He said you were going to be elected President. I appreciated that article very much. But now he is against the visit.

President Nixon: When the President says he voted for me, he voted for the lesser of two evils.

Chairman Mao: I like rightists. People say you are rightists, that the Republican Party is to the right, that Prime Minister Heath is also to the right.

President Nixon: And General DeGaulle.

Chairman Mao: DeGaulle is a different question. They also say the Christian Democratic Party of West Germany is also to the right. I am comparatively happy when these people on the right come into power.

President Nixon: I think the important thing to note is that in America, at least at this time, those on the right can do what those on the left talk about.

Dr. Kissinger: There is another point, Mr. President. Those on the left are pro-Soviet and would not encourage a move toward the People’s Republic, and in fact criticize you on those grounds.

Chairman Mao: Exactly that. Some are opposing you. In our country also there is a reactionary group which is opposed to our contact with you. The result was that they got on an airplane and fled abroad.

2010-09-29

Protectionism and currency wars

Here's an article by Martin Wolf, laying out similar arguments to those made by Michael Pettis, about how the world cannot export its way out of this mess. Wold focuses on currencies and how countries receiving large net inflows of investment capital (such as China and Brazil) should be running trade deficits (as the U.S. did during its rapid growth phase in the 19th Century).

This will be one area that politicians gravitate towards if social mood slips and the public demands protectionist laws, since it can be partially implemented by "stealth" through the central banks. The politicians will hesitate to pass outright protectionist laws because they are an overt diplomatic faux pas and will be harder to reverse. Adjusting monetary policy is less effective, less public, and more easily reversed.

Currencies clash in new age of beggar-my-neighbour

Pundits lag socionomic prediction

The political pundits are starting to come around to the idea of an epic election in the U.S. this November.

Dick Morris writes, Obliterating a generation.

and

Peggy Noonan last week wrote, The Enraged vs. the Exhausted, with the tagline:
If you thought the 1994 election was historic, just wait till this year.

The declining social mood predicted a big change at the ballot box. Even if the pundits don't want to look at socionomics, the evidence pouring in from around the globe, from minority governments in the UK and Australia, to fringe political parties and start-ups winning seats in Sweden and Japan, also heralded a big change.

Europe is now running an almost complete parallel with the U.S. on the issue of immigration. Whereas Arizona is trying to fight human migration across the Mexican border, France is trying to remove gypsies. Whereas the U.S. federal government has filed suit against Arizona to stop the state from enforcing an immigration law modeled on federal law, the EU Commission may take legal action against France.

As for the U.S., I still think the pundits are underestimating the mood of the country. At this point, however, so close to the election, there's enough information for the experts to make informed predictions. There's no socionomic surprise coming because the social mood is baked into the polls. There may be, however, an economic data surprise coming in the form of advance third quarter GDP. Consumer Metrics shows very negative trends in previous months and while they also show that the economy may have bottomed, the government data lags their real-time data. Consumer Metrics' data translates into steep declines in GDP and while it might not match it one-for-one, there's a good chance that the government also reports a negative figure.

Late news generally doesn't swing an election, but in this case, the public is concerned about the economy. A negative print days before the election could mean the difference in races that are toss-ups.

2010-09-28

Ambrose Evans-Pritchard on China and the Fed

Some interesting items from the pessimist at the Telegraph.

Little warning flags from China

“The indicator – which tends to anticipate China’s overall import growth quite accurately by about two months – has been decelerating for five consecutive months, from close to 60pc (y-on-y) in March to just 8.8pc in August. The product mix shows a sharp decline in China’s orders for electronics and IT products as well as other light manufacturing items such as precision instruments, clocks, and watches,” he said.

Separately, Melissa Kidd from Lombard Street Research has sent a note suggesting that world steel production over the three months to August has been falling at rates comparable to the onset of the Great Recession.

The drops are 7pc global, 9pc in the US, and 13pc in Germany and China. The fall in China is actually faster than it was in late 2008.

China’s young officers and the 1930s syndrome
“China’s military spending is growing so fast that it has overtaken strategy,” said Professor Huang Jing from the Lee Kwan Yew School of Public Policy in Singapore. (He kindly let me quote his remarks.)

“The young officers are taking control of strategy and it is like young officers in Japan in the 1930s. They are thinking what they can do, not what they should do. This is very dangerous.

“They are on a collision course with a US-dominated system”.

Shut Down the Fed (Part II)
So all those hillsmen in Idaho, with their Colt 45s and boxes of krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal were right all along. The Fed is indeed out of control.

On that score, here's ZeroHedge today looking at the buying of TIPS (inflation-protected securities) by the Fed itself.

POMO Begins As Brian Sack Kindly Asks Primary Dealers To Buy AAPL, AMZN, BIDU And NFLX

2010-09-27

China-Japan dispute continues

China denied banning exports of rare earth elements to Japan last week, but they may be using unofficial channels to slow exports of the critical commodities. Evidence comes from other exports being slowed by customs:

Shippers say China slows handling of Japan goods

and Japan isn't letting the issue die:

Japan asks China to cover damage to patrol boats

Rare earths running


The story about China cutting off rare earth exports to Japan last week, which they quickly denied was the case, has lit a fire under rare earth elements. The chart above compares the two month returns for China Rare Earth (0769.HK), which I own, against MolyCorp (MCP), which I didn't buy just after the IPO at the end of July because I figured I could pick shares up later...

China Rare Earth is up another 11% in Hong Kong today (this gain is not included in the chart above) and it has been rising all day. That suggests MCP could see another big pop in U.S. trading later today.

2010-09-26

Social mood and heroes

Financial war or culture clash?

Once again, the question of sovereignty pops up in a U.S.-China dispute, this time over credit ratings agencies.

Dagong, in a harshly worded statement posted on its website Sunday, said the SEC was wrong to deny its application because of the commission's inability to conduct cross-border supervision over Dagong, a touchy issue involving national sovereignty.I'm not sure I'd trust the SEC to regulate them anyway, but this will be a consistent area of conflict due to China's very broad definition of a state secret.
The firm's application was denied because "it does not appear possible at this time for Dagong to comply with the record keeping, production and examination requirements of the federal securities laws," the SEC wrote in its order.

Dagong had said that China's securities regulator would have to remove any "state secrets" from Dagong's documents before sending them to the SEC.

Dagong said it aims to enter the U.S. market to protect China's interests as the largest creditor there. As of July, China held $846.7 billion worth of U.S. Treasurys, according to official U.S. data, which doesn't count all of China's holdings.

"As a Chinese credit-rating agency, Dagong has the right to protect the creditor country's interest in the U.S. through rating operations," Dagong said.

Rise of the European right

The Establishment Rebel
Books that point out leftist and liberal failures are becoming top bestsellers in Germany. The once highly popular talk-show host Eva Herman was fired by her TV-station after she wrote a book about the damages caused to the family by feminism; Herman survived the vicious media witch-hunt that ensued and struck back with a highly successful book exposing media manipulations. A few weeks before the publication of her explosive report on immigrant crime, juvenile magistrate Kirsten Heisig was found dead in a forest near Berlin. The official story of her suicide has been seriously questioned ever since, especially in the blogosphere; in any case, her book, too, became a well-received bestseller. Meanwhile German media intensely discuss the possibility of a new center-right, conservative party apart from Merkel's Christian Democratic Union (CDU), which is constantly losing its traditional conservative supporters. Some observers, including the well known and respected philosopher Norbert Bolz, even call for a rehabilitation of the notion of the “Right,” which in left-wing dominated Germany is generally defamed as “Nazism” and “extremism.”

It was in this atmosphere of a changing wind that Sarrazin planted his book like a bomb. And it went off with a bang.

Though the usual calls for his head came immediately, general support for him, especially among the people, was so great that many of the usual suspects among the ruling politicians and opinion makers hesitated to take firm positions, as if waiting for the final verdict on Serrzin to be rendered before voicing a strong opinion on the man.
Sarrazin is from the center-left party, but his arguments are definitely coming from the right side of the political spectrum. Social mood has the people ready for change and the right is bringing fresh ideas.

2010-09-25

More on Stuxnet and cyberwar

The Cyberwar Surge

It will probably take an attack on U.S. assets to bring this into mainstream debate, but it is coming because it is inevitable. Richard Clark has a book called Cyber War that covers the topic. I saw him on C-SPAN giving a talk about cyberwar and he had an interesting quote, which I will paraphrase. He said the current approach to cyber security is as if, during the Cold War, the U.S. government told U.S. Steel that it was a target for Russian attack in a war and it ought to buy anti-aircraft guns.

We have never seen a major decline in social mood during the digital age, but it is likely that people will collapse into smaller networks online just as they will become less open to foreigners in politics. The idea of an American network to be defended from foreign attack is opposite to the concept of the World Wide Web, which links everyone around the globe. However, I expect this idea to gain momentum, at least in the sense of a need for cyber defense. There will be a white hot debate over the government's primary role to defend against foreign attack versus the liberty of the people.

The near term future of European politics



Also see You Can't Say That, by Christopher Calwell.
But the most important development, over the long run, will have been the publication in Germany of a taboo-breaking book which touched on immigrant themes. It is by Thilo Sarrazin, a member (but not for long, as it turned out) of the Bundesbank’s board of governors. Sarrazin’s book is Deutschland schafft sich ab (roughly, “The Abolition of Germany”). The controversy it has unleashed resembles the one that America had in 1994 over Charles Murray and Richard Herrnstein’s book The Bell Curve. That was a book about the role of intelligence in society that wound up being read as a book on race. Sarrazin’s is a book about Germany’s economic future that detractors have cast as a book about how immigration is ruining Germany’s “stock.” The widespread criticism the book has received from establishment politicians has not blocked—and may even have spurred—its success. It has been a number-one bestseller for a month. Stores have been sold out for days at a time.

I have not yet read the book, and won’t judge its arguments until I do. But genetics is distant from the heart of the book​. It is mainly an account of the actuarial nightmare that confronts the German welfare state, owing to a shrinking working-age population and a leveling off of productivity gains. Mass immigration has been an economic failure, Sarrazin believes, and immigrants from Muslim countries provide—for cultural reasons, it must be stressed—relatively poor raw material for assimilating into German society.
Negative social mood is going to lead to calls for reform and the "extreme" right will be ascendant during this period due to the intellectual implosion of the left. To wit:
The need to discipline Sarrazin in the teeth of widespread public support posed very tricky questions for almost all of Germany’s institutions. It was as hard as passing a health care plan that nobody wants. It was particularly hard for Sarrazin’s party, the SPD. The party head, Sigmar Gabriel, who led the effort at ousting Sarrazin, admitted that mail and emails from members were running 9-to-1 in Sarrazin’s favor. As one Bavarian SPD leader told the press, “Our party members need enlightenment, and yet more enlightenment.”

Gabriel insisted that he was not objecting to the book, which he had not read, but to Sarrazin’s “core thesis” of genetic determinism. And that core thesis, Gabriel said, was “close to” Nazi ideas of “racial hygiene.” This is typical of immigration debates: Gabriel would not accuse Sarrazin of actually holding Nazi views, because Sarrazin does not. So he criticized Sarrazin’s views on the grounds that they have “overtones” of views that he doesn’t hold. “This smacks of .  .  . ” “It is almost as if .  .  . ” “There is an uncomfortable echo .  .  . ” Once this is your standard, you can ostracize anyone for anything and still make believe the discussion you’re censoring is something “well worth discussing.” No one’s censoring anybody! It’s just that absolutely everything that questions the immigration status quo is deemed to fall short of some ever-shifting standard of intellectual propriety.

In the end, Chancellor Angela Merkel’s Christian Democrats did not escape damage. “The only solution is education, education, education,” was about the best response she could manage to the question of what she would do about the issues Sarrazin had raised. The Christian Democrats are an umbrella party of Christians, free marketers, and conservatives. The conservatives found all of this a bit mealy-mouthed. There was talk of a rupture in the ranks. A poll found that if Sarrazin were to start a political party, 18 percent of Germans would consider voting for it. In almost every newspaper, there were forebodings that Sarrazin might wind up as the German equivalent of Geert Wilders, the Dutch anti-Islam party leader, or, worse, that the truculent impatience with the German ruling classes that he had unleashed might signal the beginnings of some Teutonic Tea Party.
When more than half of the current political spectrum cannot even discuss an issue due to crimestop, it has no way to engage in debate.

2010-09-24

Speculators go long on the euro

The picture says it all, speculators are now net long on the euro. This is the first time they've turned net long since then end of November 2009, just as the euro rally was coming to an end.


Here's a long-term chart of speculative positions going back a decade, from a ZeroHedge post in March.

Here's a look at CurrencyShares Euro (FXE) on a daily and weekly basis. In the daily chart, it certainly looks overbought in the short-run. The weekly chart portends far more bullishness, if the market wants to go there, with RSI just over 50 and MACD still in negative territory.



This was one of the best weeks for the euro in the past three years, and it was similarly one of the worst for the U.S. dollar and PowerShares DB U.S. Dollar Index Bullish Fund (UUP). The technicals for the greenback are worse, with RSI on the weekly chart already headed towards oversold levels, thanks to strength in currencies such as the franc and yen.
UUP needs to hold above the $22.25 level for the rally to remain in effect and that level is close, with only a repeat of this week's move necessary to break it. I expect it will firm up in the coming weeks, as headlines such as this are eventually going to break the euro again.

Ireland GDP slump sparks bailout calls

Euro overbought?

The RSI is starting to reach overbought territory. I've taken a hit in my euro-short position, but I've made up for it with gains in gold. It seems that we may (cannot stress that enough) be seeing a blow-off intermediate term top here. I'm wondering if we'll see the speculative traders swing into net long positions on the euro when the COTS comes in at the end of the U.S. trading day.

Tim Knight has a good discussion of the euro and sentiment in his post-trade video from yesterday. He has a long-term road map and intermediate views, but he tends to be very short-term in his trading.

2010-09-23

Pacific tensions escalate

Four Japanese accused of military filming in Hebei
The authorities accuse the Japanese of entering a military zone without authorization in Hebei province, the capital of which is Shijiazhuang.

The brief report late Thursday night did not say whether the four Japanese are in detention.

The four men are believed to be employees of Fujita Corp., a Tokyo-based construction and urban redevelopment company.

"We are pretty certain they are our employees," said Fujita spokesman Yoshiaki Onodera. "But we have not spoken with them, so we don't know how they came to be questioned."


North and South Korea on the brink of war, Russian diplomat warns
In Moscow's bleakest assessment of the situation on the Korean peninsula yet, Russian deputy foreign minister Alexei Borodavkin said tensions between the two countries were running at their highest and most dangerous level in a decade.

"Tensions on the Korean Peninsula could not be any higher. The only next step is a conflict," he told foreign policy experts at a round table on the subject in Moscow.
Social mood is also at its lowest point in a decade...

Yuan hegemony

The conclusion to today's 经济观察 at QQ Finance is about the internationalization of the renminbi. It finishes with the line that U.S. dollar hegemony led to America's fairy tale economy, what kinds of dreams will the internationalization of the renminbi bring?

人民币债券的海外吸引力

The great leveling

Friedman wrote the popular book, "The World is Flat", but now we have finally reached the point where it is true in terms of military strike capability.

A computer virus dubbed Stuxnet is roaming the series of tubes that make up the Interwebs. It was already believed to be created by a nation state due to the level of complexity, but it was thought to be a superior piece of malware or an industrial espionage program. After further study, now the experts are saying that the virus infects industrial control systems and that it is designed to physically destroy a single target. It is a high grade military weapon and it is believed to already have hit its target, speculated to be the Iranian nuclear plant.

Stuxnet malware is 'weapon' out to destroy ... Iran's Bushehr nuclear plant?

See these previous post on David Murrin, who sees a rapid decline for the United States. He discusses the advent of new military weapons that reduce the U.S.'s military advantage.

Gold and the markets

Has gold hit a new high around the world? Not yet, it's still below the peak set in June against the basked of foreign currencies in the U.S. dollar index.

How about the stock market rally these past few weeks?

How much have grains rallied versus gold this year?

As for the gold miners...gold has just started moving higher in New York trading and it's helping Market Vectors Gold Miners (GDX) advance. The fund is within about 20 cents of an all-time high, previously reached in March 2008, when gold crossed $1,000 for first time. Gold is up almost 30% now since then, but GDX is flat. Some bubble...

Another look at the fall of Warren Buffet

In Socionomics—The Fall of Warren Buffett, I looked at the municipal bond debt situation. Buffett has a municipal bond insurance operation and he's invested in a ratings agency, while at the same time saying there's a big problem and that the government will bail out the states and cities.

Over at Global Economic Analysis, Mish Shedlock has been criticizing comments by Buffett partner Charlie Munger.

Amazing Arrogance, Gall, Chutzpa, and Unmitigated Effrontery from Berkshire Hathaway. Here is Munger's quote:
“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”
And here's Mish:
The one thing we desperately need is a culture change. Instead, we made too big to fail, too bigger to fail. We preserved a culture that benefits billionaires like Munger and greedy CEO's that helped cause this mess. That culture benefits no one else.

Yet Munger wants us to “suck it in and cope” and expect to be happy that he did not get wiped out.

You know what? It would have been a damn good thing if the culture died and assholes like Munger got wiped out. Munger just proved beyond a shadow of a doubt Wall Street's culture was not worth saving.
Mish received a lot of email and did a couple follow up posts. The latest is

Janet Tavakoli on the "Myth of the Amoral Debtor"; An email from a Charlie Munger student; "Business as Usual"

Here are a couple passages from reader emails to Mish:
While I knew that Buffett was a hypocrite, I never expected it from Munger who states that he lived on principles. I sold all my Berkshire shares today.
And:
Dear Mr. Buffett:

I suppose if one lives long enough, they eventually see all their living, revered heroes let them down in some way. Some succeed in this fashion far more than others. And man let me say this, “you blew me away.”
There's more at Mish's site.

It remains to be seen what Buffett does over the course of the next few years. It is likely that, as a symbol of the bull market, he will fade from prominence as long as the social mood declines and the public turns against investing. Should he continue to take actions or make comments (in this case they weren't his, but his partner's) that draw more public ire, there's the potential for him to turn from investing hero to investing goat.

2010-09-22

China-Japan-U.S. relations

China threatens Japan over jailed captain
Wen Jiabao, China’s premier, has brushed aside Japan’s call for calm in a dispute over a detained Chinese ship captain, threatening retaliation unless Tokyo “immediately” released the man recently picked up in disputed waters.

In the first comments on the diplomatic row by a senior Chinese leader, Mr Wen said Japan was “solely responsible” for the “severe damage” done to bi-lateral relations by the incident.

“If Japan clings to its mistake, China will take further actions and the Japanese side shall bear all the consequences that arise,” Mr Wen said.

The Chinese premier was speaking to a group of Chinese citizens and Chinese-Americans after his arrival in New York on Tuesday to attend meetings at the UN.

U.S. Congress to move on China currency bill
U.S. lawmakers may vote next week on legislation that would penalize China for keeping its currency artificially low, a touchy issue that has gained broader political support as congressional elections approach.

The decision to move a bill to pressure China to let its yuan currency appreciate against the U.S. dollar comes a day before President Barack Obama is due to meet with Chinese Premier Wen Jiabao in New York.

A House of Representatives committee scheduled a vote for Friday on a China currency bill, and a Democratic aide said the full House was expected to vote on the measure next week.
Election season ploy, or will this have legs after the election?

Here's an article discussing how easy it is to stir up trouble in the Pacific.

Vague sea borders let hawks pick their fight
Here is the crux: all around China there are vague sea boundaries, with even vaguer claims, and any side can push the envelope, or take actions that may be perceived as pushing the envelope. At any given moment an aircraft, a submarine or a fishing boat could cause an incident. Somebody can then leak it to the press and have it become a big international issue, stirring public emotions that kindle other incidents. In a matter of days, it could become a wildfire in which other countries demonize China or China demonizes other countries.

In other words, China can pick a fight with the rest of the world just by pushing the envelope on its vague ocean borders. Similarly, any country in the world can push China into a fight by stirring trouble with one of its neighbors.
The author, Francesco Sisci, also discusses how nationalism and xenophobia in China is contained by the undemocratic political system and draws a comparison to Germany in the 20th Century.

That's not to say China is Germany, but whereas U.S. and Japanese politicians can be directly influenced by nationalists and xenophobes, China's leaders have an easier time controlling internal debate. However, if foreign powers generate confrontation, it works in favor of the nationalists and against the leadership in China. In terms of the currency manipulation bill in Congress, this type of act will work to strengthen nationalist elements in China—as well as in the U.S., where they will look to extend their political victory—making further confrontation more likely. Toss in declining social mood and it makes for a pessimistic outlook for international relations.

Update: I missed this story earlier.

Amid Tension, China Blocks Vital Exports to Japan
Sharply raising the stakes in a dispute over Japan’s detention of a Chinese fishing trawler captain, the Chinese government has blocked exports to Japan of a crucial category of minerals used in products like hybrid cars, wind turbines and guided missiles.

Chinese customs officials are halting shipments to Japan of so-called rare earth elements, preventing them from being loading aboard ships at Chinese ports, industry officials said on Thursday.
This is going to be huge because China currently controls over 90% of the global supply.
American companies now rely mostly on Japan for magnets and other components using rare earth elements, as the United States’ manufacturing capacity in the industry became uncompetitive and mostly closed over the last two decades.

The Chinese halt to exports is likely to have immediate repercussions in Washington. The House Committee on Science and Technology is scheduled on Thursday morning to review a detailed bill to subsidize the revival of the American rare earths industry. The main American rare earths mine, in Mountain Pass, Calif., closed in 2002, but efforts are under way to reopen it.

The House Armed Services Committee has scheduled a hearing on Oct. 5 to review the American military dependence on Chinese rare earth elements.

The Defense Department has a separate review under way on whether the United States should develop its own sources of supply for rare earths, which are also used in equipment including rangefinders on the Army’s tanks, sonar systems aboard Navy vessels and the control vanes on the Air Force’s smart bombs.
This could potentially tip a couple of votes in favor of the currency legislation in the House.

Second Update: China says not so on rare earths story.

China Denies Halting Rare-Earth Exports to Japan

Liu Jun Luo expects deflationary forces

美元、人民币、黄金、常识+公告
今年最后一天的2010年12月31日,将是小布什先生的美国历史上最大的十年期减税政策的自动到期。如果,美国国会和奥巴马先生不能再签署新的减税政策,那2011年1月1日,美国世界就将进入中性的紧缩财政时代。2001年本人上书中国高层及中国媒体呼吁,中国必须建立由石油、黄金、农田、水资源、稀缺矿藏、煤、森林等等的——次级金本位,来对抗美元的大规模贬值周期的出现。因为,道理是一个简单的常识,就是2001年美国历史上最大规模财政赤字周期的开动。在过去十年中,中国官方外汇储备是全力大规模持有美元,这场的大背景是美国的高财政赤字与接近零的储蓄率,高财政赤字与接近零的储蓄率必然衍生出高贸易赤字。所以,中国官方外汇储备是在美国政策主导的美元大贬值周期中,作出英勇的无私牺牲。2010年,美国世界出现了史无前例的转变,美国的储蓄率上升至6.5%与7800万婴儿潮的大规模退休的启动,包括美国在2011年1月1日的中性紧缩财政时代的开启。2010年,更让我困惑的是中国央行的全力官方外汇储备多元化政策,难道我们是“伤疤未好痛已忘”。

The last day of the year on Dec. 31, 2010, Mr. Bush will be the largest in U.S. history a decade of tax cuts automatically expire. If the U.S. Congress and Mr. Obama can not sign new tax cuts, that January 1, 2011, the United States will enter the world of tight fiscal times neutral. In 2001 I released a letter to top Chinese and Chinese media have called for China to establish oil, gold, farmland, water resources, scarcity of minerals, coal, forests, etc. - and secondary gold standard, to confront the dollar's massive devaluation of the emergence period. Because reason is a simple common sense, that is, in 2001 the largest deficit in U.S. history, the start cycle. In the past decade, China's official foreign exchange reserves are large-scale effort to hold dollar, this is a great background of high U.S. fiscal deficit and near-zero savings rate, high fiscal deficit and near-zero savings rate must rise to the high trade deficit. Therefore, China's official foreign exchange reserves in the U.S. dollar devaluation policy-led cycle, to heroic and selfless sacrifice. 2010, the United States and the world of unprecedented change, the U.S. savings rate rose to 6.5% and the 78 million baby boomers start to retire a large scale, including the United States in January 1, 2011 the neutral era of tight finances. 2010, made me confused is the full official central bank reserve diversification policy, should we be "a wound hurts not been forgotten."
The inflation happened in the 2000s, the U.S. dollar was devalued and now the U.S. is facing demographic headwinds and political forces that will tighten fiscal policy. Liu appears not to anticipate a tea-party led victory for the GOP, but at this point it seems that if the GOP picks up enough seats, even the tax cuts for the wealthy will be on the table. However, if the tax cuts do expire, it would be massively deflationary because it would cut twice. First, it would take money out of the pockets of taxpayers and shift it to the less efficient government sector, reducing the impact of this spending by some factor. Second, it would reduce the need for U.S. borrowing, which would also reduce the amount of credit creation in the system. Since private credit would also tighten, as consumers had less disposable income, this would be overall deflationary.

Talking past each other on trade

In A Sino-U.S. financial war?, I discussed how the Chinese articles were almost completely different from the Western articles on the Unionpay-Visa dispute.

Michael Pettis notices the same thing in couple of articles about China and its role in the global economy. Pettis' article is worth reading in and of itself, on potential deregulation of deposit rates in China, which he has argued is important for personal consumption rates.

The two articles are:

China is Still a Renegade Nation

and

China's yuan on long gaining streak

The conclusion to the former article is the increasingly popular argument that protectionism favors the deficit countries. Surplus countries are the ones benefiting from free trade, so it stands to reason that they will see a larger drop in business if the economy weakens or barriers are erected to slow or block trade. Exhibit A is the United States during the Great Depression.

The second article discusses China's efforts to keep the global economy humming, including increasing flexibility with the currency.

Protectionism becomes much easier when the two sides are talking past each other.

2010-09-21

Do women's heels move with hemlines?

Kitten heels are returning but will Hong Kong women take the step back in time?
"We definitely are seeing more kitten- and mid-heels presented this season. Sky high styles have been the trend for a while now so we are now looking to update our look with something totally different to keep things fresh and interesting," says Christine Park, senior buyer of ladies shoes and handbags at Harvey Nichols.

"I don't think the trend ever went away," says Peter Nichols, senior shoe buyer for Lane Crawford. "Over the past few seasons we have seen our customers requesting more lower and mid-heel options. I think that many women are ready to come down off their platforms."
It sounds like the heels drop with social mood:
For buyers like Paddy Wong-Schupp, the lure of the kitten heel is not just in its practicality, but also in its glamorous allure.

"I love kitten heels. I see them as feminine to look at on and off feet. I see glamour in them - the 1950s type Mad Men glamour - just wear them with a below-the-knee pencil skirt."
She's just a single "woman on the street" quote in the article, but she mentions below the knee skirts to go with the shorter heel. However, according to the Wikipedia, the shoes went out of fashion in the late 1960s and reemerged in the 1980s.

Finally, here's a very long article on high heels, if you're interested. Sex, Power, and High Heels: An Interview with Shoe Curator Elizabeth Semmelhack

Sign of the times in Japan

10 cent (10 yen) stores are growing in popularity as deflation continues unabated.

Ten-yen stores capture deflation dilemma
One answer is found in Kawasaki City, about 20 kilometers southwest of downtown Tokyo. There, a 10 yen-shop called Recycle Garden (equivalent to a 10 cent store in the US) is attracting large numbers of customers by word of mouth. The outlet is one of nine Recycle Garden branches operated in the Kanto region centered on Tokyo and including Yokohama, Kawasaki and Atsugi.

At Recycle Garden, 10 yen buys the customer everyday items such as chopsticks, kitchen goods, nail-scissors, hand sanitizers, or air fresheners. A colored plastic hair clasp is also 10 yen. In the Kawasaki shop alone, the product lineup consists of about 1,000 items at 10 yen, with the number of goods totaling around 30,000. It's all there.

Surprisingly, most of those products are made in Japan, not in China, Vietnam or Cambodia, from where usually cheaper and lower-quality goods flow into Japan.

"Everything is incredibly cheap," said Kyoko Yamada, 52, a careworker, who lives in Tsurumi Ward adjoining Kawasaki, who on a recent visit to Recycle Garden bought 10 items such bath agents.

How is such unprecedented price-slashing possible?

The mechanism is this: amid an increasingly fierce pricing war among neighborhood retail shops such as 100-yen convenience stores, Recycle Garden makes bulk purchases of those goods from bankrupt shops and firms as from deceased manufacturing and wholesale merchants. In most cases, on hearing the news about a bankruptcy, Recycle Garden workers dash to the failed firms with large dump trucks, and buy up and take away immediately to their chain store a vast amount of goods.

"We are cutting prices to the bone," said Tadafumi Fukuda, 41, manager at Recycle Garden's Kawasaki outlet. "Since we also sell other items at 88 yen and above, 10-yen goods serve as a crowd puller." The number of customers visiting the shop has increased 20% from a year ago, when the shop started to sell 10-yen goods, he said.

Fukuda said Recycle Garden does not buy goods on credit from bankrupt firms, but pays cash because falling and failed firms more than others need cash on the spot. In a sense, Recycle Garden can be considered a salvage outfit, or sometimes a savior, for a troubled company without access to credit. But it can also be seen as a vulture in how it obtains goods at a substantial discount.
The article goes on to cover the bigger picture in Japan and concludes with this line:
If that is the case, the US may soon see nine-cent shops, instead of 99 cent shops, on the streets of New York, if the Barack Obama administration and the Federal Reserve fail to address properly the issue of deflation.
Note that Japan has been addressing the issue for going on 20 years...

Social mood in East Asia

The U.S.-China spat over the South China Sea has calmed, but things are heating up between China and Japan following the incident at the Diaoyu (Senkaku) Islands.

China raises pressure over detained seaman
In the Chinese city of Nanjing, former Chinese Foreign Minister Li Zhaoxing, now chairman of China's Foreign Affairs Committee of the National People's Congress, canceled his participation in a China-Japan business forum. Other high-ranking officials of Jiangsu province, of which Nanjing is the capital, also pulled out.

...The Japanese foreign ministry said a scheduled trip by a group of about 1,000 young Japanese to China's Shanghai World Expo has been canceled.

A Japanese ministry representative said China had decided against the trip, which had been organized on the back of a proposal by Chinese Premier Wen Jiabao during his meeting with Japan's Prime Minister Yukio Hatoyama in May.

China halts ticket sales for Japan pop group
Two China concerts next month by Japanese pop band SMAP could fall victim to a diplomatic row between the two countries after ticket sales were suspended at the weekend, media reports said Tuesday.
The five-member pop group is scheduled to perform before some 80,000 fans at the Shanghai World Expo on October 9-10, but a Chinese ticket agency abruptly stopped selling the tickets Sunday, the Sports Nippon tabloid said.
Here's an interesting split opinion in the Western press.

China's maritime aggression should be wake-up call to Japan

Japan's Growing Assertiveness at Sea

Political scandal and social mood

In a rising social mood, voters overlook politicians scandal and law breaking. In a declining social mood, they punish them. And not just current politicians either, those who have left office are still at risk. Consider this story.

Jacques Chirac to stand trial for embezzlement
The 77-year-old, whose presidency of France ran from 1995 until 2007, could face a ten-year prison sentence and 150,000-euro (£130,000) fine if found guilty. He will be the first modern French leader to face a corruption trial.
Mr Chirac faces charges of abuse of public funds while he was mayor of Paris. It is alleged that he paid 21 allies for doing non-existent jobs as part of his drive for power in the 1990s. Last month, the Socialist mayor of Paris, Bertrand Delanoë, agreed to drop the town hall's civil lawsuit against Mr Chirac in exchange for 2.2 million euros – the amount of taxpayer's money it claimed was misused.

A Sino-U.S. financial war?

银联引发中美金融战? Unionpay triggers a financial war with the U.S.? Tencent, the popular messaging service, has this story as its big topic for the day, with links to many articles on the topic.

It comes on the heels of this story:

Visa blocked in China after Unionpay dispute
Visa first warned Unionpay almost a year ago to stop processing international transactions for co-branded cards through Unionpay’s own payment system rather than Visa’s, a demand Visa makes of all its partners around the world.

But Unionpay, which was set up under the auspices of China’s central bank and is owned by 80 Chinese banks and other state entities, initially refused to comply and issued a scathing rebuttal in June this year when the dispute became public.

While Unionpay has continued to gradually expand its co-operation with companies like MasterCard and American Express, it has refused to consider any new business lines with Visa since the payments group asked it to observe the terms of their agreement, according to people in the Chinese bank card industry.
The U.S. government spent billions to bail out the financial sector; expect this issue to grow in importance the longer it drags on. Also, consider it another front in the protectionist battle. Manufacturing has had a hard time making its case in Congress (Congress mostly supports the arguments of industry, but does nothing tangible in the way of policy), but finance is more powerful and considered more important to the economy by Congress. Also, this is a state owned bank directly competing with a major U.S. and international firm, the media will have no trouble drawing clear distinctions.

The tone of the Chinese articles is completely at odds with the English articles that discuss the monopoly position of Bank of China's Unionpay

At the Chinese link, one of the articles has a quote by Song Hongbing, author of Currency Wars and Currency Wars 2, who compares it to nuclear security, since Visa could eventually data mine the spending habits of the entire Chinese economy.
宋鸿兵:绝大多数中国人不太理解为什么交易系统是万事达和银联的系统扩张和双方竞争,核心在什么地方?在我看来,这个问题最要命的是谁负责清算。清算是金融交易中间最最本质和核心的,掌握着所有交易数据,如果VISA、万事达进入中国,全中国使用VISA、Master卡的人,所有的金融核心机密和信息全部被人掌握了。如果进行数据挖掘,很可能发现个人的消费习惯,甚至账户上大概的资金量,甚至可以追踪每笔钱的去向,这太可怕了,比核武器最最核心的设计机密还要重要得多。这就是双方争夺的要点。
Lame Google translation:
Most Chinese people do not understand why the trading system is the Master and the Consortium of system expansion and competition in both the core in what areas? In my view, the issue is who is responsible for most fatal liquidation. Clearing the middle of the financial transactions and the core issue of the utmost essence, the master of all transaction data, if VISA, MasterCard into China, the Chinese use of VISA, Master card, all the financial heart of all information confidential and be mastered. If data mining is likely to find that personal spending habits, or even about the amount of funds accounts, and even track the whereabouts of each money, this is terrible, the core of the design than the nuclear issue of the utmost confidentiality is much more important. This is both the main points of contention.
He also points out that Visa and Mastercard are basically a duopoly, a monopoly +1.

Other articles mention national security and make similarly strongly worded arguments.

There is also an anti-Visa argument that I haven't come across in the English press. Unionpay previously criticized a move by Visa back in June regarding international transactions, and Visa is seen as the instigator of trouble in China.

Visa, China UnionPay in Dispute on International Credit-Card Transactions
Visa Inc., the world’s biggest payments network, told banks and merchants to use its system to process international transactions by Chinese holders of cards co-branded with China UnionPay Data Co.

“Visa regularly reminds its global clients and partners of their obligations to adhere to these rules as well as enforcement actions for non compliance,” Jeremy Griffith, a Sydney-based spokesman for Visa, said in e-mailed comments today. “This is not a new rule and is not specific to China UnionPay or any other network.”

Foreign banks in China must “co-brand” with Chinese operators on credit cards and execute payments through UnionPay, the country’s largest electronic payment network. Visa said international transactions must be processed over its network while UnionPay said in a statement yesterday that the U.S. company doesn’t have the right to block the use of dual-currency credit cards abroad.
Mix in the declining social mood and this is a story that is likely to have legs.

Wage inflation coming to China

Firms see pay floor rising 20pc a year up to 2015
Beijing plans to raise the minimum wage by at least 20 per cent annually over the next five years to boost domestic spending power and consumption, according to a powerful consultative body.
More than doubling the pay by 2015 would be top of the agenda of the nation's next five-year plan, said Huang Mengfu, vice-chairman of the National Council of Chinese People's Political Consultative Conference and chairman of the All-China Federation of Industry and Commerce.

Beijing is making a concerted push to lift domestic demand in an attempt to lower its reliance on exports and close the gap between the poor and the rich, he said.

In return for raising salaries, Huang said the CPPCC would propose to reduce government fees and administrative charges levied on factories.

"Chinese wages are too low and lagging behind the country's economic growth," Huang told a 30-strong delegation of Hong Kong Young Industrialists Council yesterday. "The wage increase may put some pressure on manufacturers, but this is inevitable during economic development."
China is cutting government to ease the costs on business, in order to pay for a rise in the minimum wage. Another avenue for incomes comes via farmland, which still has yet to be fully reformed. The laws are in place, but more work is needed.

Releasing the 8 trillion yuan tied up in China's farmland
But in many areas the laws are more honoured in the breach than the observance. According to a mid-2008 survey by the Rural Development Institute, only around a quarter of farmers had heard of the 2007 property law. Some 80 million households had never received either their land certificates or contracts. And nearly a third of farmers said land seizures continued unabated.

Prosterman and Gao argue that if Beijing wants to increase rural incomes and consumption, the government should give priority to enforcing the law and implementing policies. Officials should be pushed to issue land documents to all farmers over the next five years. Arbitrary reallocations and illegal seizures should be stopped, and fair compensation paid for legal seizures.

What's more, the authorities should make a concerted effort to educate farmers about their rights, complete with information hot-lines and established procedures for dealing with complaints.

On top of that, the government should put in place the final piece missing from the rural jigsaw by allowing farmers to mortgage their land holdings to fund improvement programmes.

The impact on incomes could be enormous. Based on an annual rental value of around 3,400 yuan (HK$3,900) per hectare in the embryonic leasing market and assuming a 5 per cent yield, Prosterman calculates the average capital value of China's farmland is 68,000 yuan a hectare. That means China's farmers are sitting on assets worth an astonishing 8.2 trillion yuan, or almost 25 per cent of China's gross domestic product.
The latter is an opinion article, but reform is generally moving in this direction.

Inflation will be tough to keep down with wages doubling, however, unless the banking system needs recapitalization. In that case, savings rates will drop, causing the higher wages to be plowed into savings.

There's great risk in this system. Assuming wages rise beyond their market clearing rate and the renminbi appreciates, China could face rising unemployment. On the other hand, the government is cutting costs to pay for the plan. If the government's reaction to economic hardship is to cut the bureaucracy and taxes, then even poor implementation or bad luck can be overcome.

2010-09-20

China currency reform


Tim Geithner and those pushing China to revalue its currency may be in for a surprise once the yuan becomes an international currency.

Malaysian central bank buys renminbi bonds

2010-09-19

Social mood captured in political ad by CatholicVote

This ad is good at capturing the negative social mood in the beginning and then turning it into an optimistic message. Just because the social mood is negative doesn't mean optimism won't sell, it just has to be cognizant of the mood.

Anti-immigration party wins in Sweden

Swedish Anti-Immigration Party Claims Seats
Unlike nearby Denmark and Norway, where populist anti-immigration parties have been successful for years, voters here had never before given the Sweden Democrats sufficient support to overcome the 4 percent threshold they needed to reach Parliament. Television projections put them at 5.6 percent late Sunday.

With 97 percent of Sweden’s 5,668 districts counted, the government coalition won 49.3 percent, compared with 43.5 percent support for the opposition bloc.

With its high taxes and a generous welfare system, Sweden has been regarded by many outsiders as a bastion of liberalism and tolerance — immune from far-right politics.

However the integration of minorities within this nation of 9.4 million people has become a growing preoccupation, especially in cities that have experienced high rates of immigration.

Though the official campaign was dominated by discussion of welfare reform and taxation, immigration lurked beneath the surface.
Notice the NYTimes is unable to even articulate what is going on—it's just a sanitized report—but for socionomics that works fine. And depending on how large this shift in social mood becomes, the trends underway may gain strength in the coming years:
In Sweden, mainstream politics is changing. For most of the last century, political life was dominated by the Social Democrats, one of the most successful vote-winning parties in Europe. Ejected from power in 2006 by Mr. Reinfeldt, their decline has deepened. Swedish television projections showed they were on course for their worst election result since World War I.
Like the Democrats and Republican establishment in the United States, the rest of the political establishment in Sweden has chosen to ignore the socionomic trend and go down with the ship:

Swedish government seeks way to exclude far-right
Left Party leader Lars Ohly blamed the demise of Europe's traditional welfare model and extreme disparities of wealth across the continent for voters' frustration.

"We have seen it in our Nordic neighbors, we have seen it in Holland, Belgium," he said. "I think a lot of people are looking for a simple solution -- to blame someone, immigrants and immigration."

But despite four years of trimming back benefits, Sweden's welfare state remains one of the most comprehensive in the world. Furthermore, the country's economy is growing fast, public finances are robust and unemployment, though high after the recent global economic crisis, is coming down.

Jimmie Akesson, leader of the Sweden Democrats, said his party was not targeting immigrants but Sweden's failed immigration policies. He said he was ready to negotiate with and cooperate with all the other parties.

"We are not going to cause problems. We will be responsible. That's my promise to the Swedish people," said Akesson.

Both major blocs have said they would not work with the Sweden Democrats.
If the trend in social mood is confirmed and the excessive immigration at peak social mood remains an area of targeted reform, the Sweden Democrats have a very bright future.

Protect your house from demolition

Here's a Chinese flash game based on the phenomena of nail houses, when an entire block is cleared of homes, but one holdout remains.

Click the phone to buy units to arm your nail house.

钉子户大战拆迁队

2010-09-17

Euro fracture: rhetoric or something more?

The French are kicking out the Gypsies, a move that only appears unpopular with the EU bureaucracy. First up, the Guardian with Treatment of the Roma: the shame of a continent
A memo from France's interior ministry this week confirmed that President Nicolas Sarkozy's war on Traveller camps had an explicit racial dimension, with Roma people being deliberately targeted. By doing so, it has jolted the European commission out of indulging the Sarkozy stunt, and into a full-throated attack on Paris. It has stirred overdue introspection in France about how minorities are treated, even while its politicians stampede to use the law to persecute those few Muslim women who wear a face veil. And it has highlighted how Europe's largest minority, the 10 million-plus Roma people, suffer right across the continent's boundaries.

For France is not alone. The systematic discrimination against Roma in eastern Europe – where Gypsy children have often been routinely packed off to schools for the "mentally deficient" – is an acknowledged if underreported reality. But with the EU's eastward expansion and the migration that followed, eastern attitudes have been spreading west. While the Danes have been seeking to expel some Roma, Swedish police have been caught illegally forcing others out of the country. As Germany has repatriated Gypsy children to Kosovo, the Belgians have driven a camp out of Flanders and the Italians have used the presence of Roma as reason to declare a state of emergency.
I liked this line the best:
Rolling caravans do not lend themselves to rooted integration, and especially when they are decoupled from standard western ideas about property rights.
Migrant population that doesn't respect property rights...so basically a roving criminal gang?

Sarkozy rages at EU ‘humiliation’
The veteran commissioner was forced to apologise publicly late on Wednesday, telling the AFP news agency that she “regretted the interpretations that were made of [her] comments. In no way did I wish to establish a parallel between the second world war and the actions of today’s French government”.

But Mr Sarkozy replied vividly to her comments on the margins of a European summit in Brussels.

“The comparison with the second world war and what happened in our country – it is an insult. It is a wound. It is a humiliation. It is an outrage. We don’t talk this way between European partners.”

In defiance of Brussels’ questioning of France’s policy, Mr Sarkozy said he would continue to dismantle illegally built camps.
A new political fault-line in the EU. Eurosceptics have called the EU fascist and beyond national control. Sarkozy says Germany is also moving out Gypsies and the Guardian editorial confirms, most of Europe is expelling Gypsies. The U.S. has a similar conflict, as states try to deal with illegal immigrant populations. The difference is the EU is not as powerful as the federal government and heads of state in Europe still have more power than state governors in the U.S.

2010-09-16

Anti-Japan protests in China

A few years ago the Chinese had massive protests against Japan, and it appears we could be in for a repeat.

Beware in China, Japan warns citizens
Japan has warned its nationals in china to take precautions ahead of likely anti-Japanese protests this weekend, when a sensitive anniversary will be followed by an expected announcement on whether Japan will prosecute a Chinese trawler captain seized in disputed waters.
In some sense, this is nothing new—see the 2005 anti-Japanese demonstrations.

Protests are picking up quickly though:
In Guangzhou, protestors hurled beer bottles at the Japanese consulate. In Tianjin, they damaged Japanese buildings and fired ball bearings at a foreign school. In Hong Kong, activists stormed the Japanese consulate.

2010-09-15

Revolution underway

I began reading about socionomics about two years ago and would be reluctant to even call myself an amateur. However, I've been placing events in the context of social mood if only to see if this theory holds water. Thus far, I've found it's helped explain the course of events, and perhaps no more so than in politics.

Speaking of this year's elections, I recently wrote:
If I were betting, I'd place money on the most extreme outcomes, for example I predict that Sharron Angle will unseat Harry Reid.
In Delaware, Christine O'Donnell's victory over Mike Castle qualifies as an extreme event. The Republican establishment ran against her and says it will not provide any funding or support in the general election:
The National Republican Senatorial Committee offered its congratulations to O'Donnell immediately after the result was determined.

"We congratulate Christine O'Donnell for her nomination this evening after a hard-fought primary campaign in Delaware," said a statement by Rob Jesmer, the NRSC executive director.

However, a top Republican official told CNN on Tuesday night that O'Donnell will have to show she can generate viable support before the national party will give her money.

"It is now incumbent on Sarah Palin, (U.S. Sen.) Jim DeMint and the Tea Party Express to help support her," the official said on condition of not being identified by name. "They got her here. Now make it happen."
The above statement is probably the most important of the entire night; it is the only one you need to read. There is a total revolution underway within the Republican party and it is winner takes all. The trend in social mood says that the above speaker will either be a Democrat or unemployed within a few years. The comment is an abdication of leadership and reflects the anti-establishment mood within the country, which has been covered in several articles, most extensively in America's Ruling Class -- And the Perils of Revolution.

Democrats are better off in terms of employment (they will maintain control of their party), but not power.

In A brief political outlook for 2010 and beyond, I wrote:
What I am sure of is that politics will move away from the center, but I think we're in the zone of chance. Democrats took over in 1932 because Republicans were in charge. I don't know when the break will come for the public, but when it does, whoever is in power will not be in power for a long-time thereafter. In this regard, the culling of incumbents is crucial because it will allow either party to claim to be fresh blood. The party out of power, or if power is split, the party with the fewest incumbents up for re-election will be the winner.
Republicans are culling incumbents en masse.

In Socionomics Alert—Breakups in Europe to begin?
I tend to believe that two things need to happen for an "extreme" political/financial event to occur. One, the social mood must be right, but two, the trend or movement must be in place. For instance, whether right or left-wing, whichever extreme has the political momentum and the candidates and issues ready, can win victory.
Depending on how low and for how long the social mood declines, almost anything can happen. Looking at the next 10 years, however, the Democrat party is still fully establishment, while the Republicans may be completely anti-establishment by 2012. That means they are in the catbird seat given the trend in social mood.

As for further predictions, if O'Donnell does become Senator O'Donnell, it will probably come on a night that will be called the greatest GOP victory since Reconstruction, but I don't see the social mood as being negative enough—yet. I don't expect her to win, but the more important question is what happens to the Delaware GOP. Will O'Donnell and the conservative forces remake the party, or will she be a footnote?

The story is about control for the party, not control of Congress. While some current Democrat leads are likely to evaporate by November, there isn't yet the tidal wave of voter support for a huge change. Given the effect of just one faction of the U.S. electorate becoming mobilized, this should have establishment politicians very worried.

Finally, O'Donnell wasn't the only victory last night. Carl Paladino won the GOP nomination for governor in New York and although just a poll, Marco Rubio has a huge lead in Florida.

2010-09-14

Political Reform in China

Strident call for political reform
The article, with the headline, "Political Reform is What People Want", echoed Premier Wen Jiabao's bold call last month for the country's political system to be liberalised and more rights granted to its people. "Among all reforms, political reform is of critical importance and marks the decisive step along the road," the article, written by Central Party School scholar Hou Shaowen, said. "The country will have a bright future if we succeed in pushing political reform ... otherwise, the fruits of economic reform will be lost and the goal of modernisation cannot be achieved. Going against the people's will would lead the reform to fail."

The article is being seen as another round of the political discussion stirred up by Wen's eyebrow-raising speech in Shenzhen last month. It sides firmly with the premier, saying that only political reform can save the country from problems ranging from an overconcentration of power to grave social inequalities.

Wen's remarks were played down by mainstream state media in what was seen as an effort by party conservatives to contain his influence, but were relished by party reformists and liberal publications. The Guangzhou-based Southern Metropolis Daily and the Beijing-based Caixin magazine backed Wen.

Pacific stays hot

Although U.S.-China relations are improving from August, China and Japan are in a stand-off over the Diaoyu islands.
Beijing ups rhetoric over islands clash
Japan called the situation "extremely regrettable" but China went a step farther, placing the blame squarely on Tokyo and demanding that the arrested skipper, facing up to three years in jail, be freed without delay.

"Japan provoked this serious situation and Japan should take all responsibility," Foreign Ministry spokeswoman Jiang Yu said, adding it was imperative that the captain be released immediately and safely.

"Taking into consideration all elements, China has decided to postpone the NPC delegation's visit to Japan," she said, referring to a visit by a senior legislator and his delegation, which was to have begun today.

Japan said the trawler last week rammed two Japanese coastguard patrol vessels intentionally during a high-seas chase near the disputed islands, which are claimed by both countries as well as Taiwan.

Japan on Monday released the trawler's 14 crew members and allowed the boat to sail back to China, but that has done little to appease Beijing, incensed over what it reiterated was Japan's illegal handling of the matter.

Yuan denominated shares in Hong Kong

China, Hong Kong Open Lane to Homebound Yuan
Supervisory authorities and stock exchanges are well-prepared. The Hong Kong Stock Exchange issued a circular September 1 inviting market participants for a simulated trading test September 18, suggesting technical obstacles for yuan-based financial products including stock have been cleared.

The testing began on the heels of circulars issued by the exchange and CSRC urging preparations for trading yuan-based products. Some securities firm executives in Hong Kong have say they're now pushing Chinese companies to make initial public offerings with yuan-dominated shares – and could see their campaign succeed before the end of the year.

Industry sources say the first yuan-based IPO in Hong Kong will likely be launched by a company whose assets are 100 percent in China, since it will be relatively easy to transfer funds back home after the fund-raiser.
Some securities executives have optimistically estimated that half the all stocks on the Hong Kong bourse could be priced, settled and traded in yuan within five years. And studies focusing on a Hong Kong Stock Exchange Traded Funds listing in Shanghai have resumed.
The United States Congress ought to be thinking about the financial competition coming from Hong Kong and Shanghai, rather than the value of the currency. The patient has a severed limb and the doctor is debating whether to use aspirin or ibuprofen to treat the pain.
China Plans to Introduce Credit-Default Swaps by Year-End, Official Says
Investors in the derivatives will be required to own the underlying risk, Shi said today in an interview with reporters in New York. China plans to limit the amount of leverage used in the contracts to avoid the kind of financial crisis faced in the U.S. two years ago, he said.

“We believe CDS is a neutral risk-management tool,” Shi said. “It is neither evil nor good.”

Private swaps complicated efforts to solve the credit crisis in the U.S. when regulators and market users couldn’t easily determine how interconnected banks had become through trading contracts.

China also expects to open its debt markets further to foreign companies, saying the prospects for their selling debt will gradually improve during the next 3 to 10 years to “extraordinarily great” from “promising,” Shi said.

Europe well ahead U.S. in anti-immigrant sentiment

Anti-immigrant wave spreads across Europe
"Right now we are focussed on building up this new party in Berlin, but if we have success here, I certainly can't rule out extending it nationwide," Stadtkewitz, who was kicked out of Merkel's Christian Democrats (CDU) for his views, told Reuters.

The 45-year-old from the east Berlin district of Pankow, who wants headscarves banned, mosques shuttered and state welfare payments to Muslims cut, is the newest face of a powerful anti-immigrant strain in European politics that is winning over voters and throwing mainstream politicians onto the defensive.

Parties with xenophobic-tinged programmes are not new in Europe. The National Front of Jean-Marie Le Pen has been a force in France for years, as has the Northern League, which is part of Prime Minister Silvio Berlusconi's ruling coalition in Italy.
Social mood is declining and the anti-immigrant movement is far more established in Europe, with several political parties across the political spectrum (socialist BNP in the U.K.; center-right in Germany). There will be political success in Europe long before anything similar happens in the United States.

However, what appears xenophobic to present day observers, is in some cases what was normal for much of history. Immigration and multiculturalism were so extreme at peak social mood that in some parts of the world, there was almost reverse assimilation. What's happening right now is the correction to this peak. If the social mood declines far enough, then we will start to see mass anti-immigrant sentiment and outright xenophobia. Instead of dress codes, there will be deportations and outright bans on immigration (or severely restrictive policies based on national origin).

2010-09-12

Scientific American reflects social mood

How much is left?

Why would people worry about running out of resources during an economic contraction, when logically it is a greater problem during economic expansion? Malthusian economic forecasts are starting to pick up the pace. Here's one headline hitting the wires last weekend:

Doomsday warnings of US apocalypse gain ground

ZeroHedge sums up the Scientific American piece in Peak Everything

2010-09-11

Burning Korans


Socionomics informs us on the social mood, not necessarily how it will specifically manifest. Increased racial tensions or anti-foreign sentiment, however, means increased conflict with Muslims was extremely probable given the events of the preceding decade. The thoughts of the people aren't controlled by social mood, but their strength is enhanced by social mood. Korans have been burned in protest many times, only now is it becoming a hot button issue, as is the mosque at Ground Zero. Here's the Google Trends for quran burned and also in Arabic حرق القرآن الكريم. Is social mood in worse shape in the Middle East?

I think its a mistake to attribute this to xenophobia or bigotry, although those thoughts are certainly a part of the larger group. Instead, it is more likely a much deeper trend rising to the surface, that of the conflict between Islam and Christianity ever since the armies of Muhammad stormed out of the desert (a more recent analogy may be the Cold War, when anti-Communism was attributed to xenophobia). Whereas anger and opposition to Japanese business in the 1980s and Chinese currency issues today may be wrapped up in some shallow xenophobia, the religious and cultural conflicts emerging are part of an older and deeper trend. Samuel Huntington's 1997 Clash of Civilizations explained the coming change in the world order. It is likely that the conflict going on today will not disappear when the social mood shifts, only the tone and form of the conflict will change.

Is Camille Paglia channeling socionomics?

Peaks and troughs in social mood are also be turning points for cultural movements; the stock market is just the one of the clearest representations of the mood. Camille Paglia takes a look at the sexual revolution, which although she doesn't mention it, is also tied up in larger social trends such as feminism, gay marriage (a peak social mood movement?) and religious adherence secularism.

Lady Gaga and the death of sex
Furthermore, despite showing acres of pallid flesh in the fetish-bondage garb of urban prostitution, Gaga isn’t sexy at all – she’s like a gangly marionette or plasticised android. How could a figure so calculated and artificial, so clinical and strangely antiseptic, so stripped of genuine eroticism have become the icon of her generation? Can it be that Gaga represents the exhausted end of the sexual revolution? In Gaga’s manic miming of persona after persona, over-conceptualised and claustrophobic, we may have reached the limit of an era…

Perhaps the symbolic status that sex had for a century has gone kaput; that blazing trajectory is over…

Compare Gaga’s insipid songs, with their nursery-rhyme nonsense syllables, to the title and hypnotic refrain of the first Madonna song and video to bring her attention on MTV, Burning Up, with its elemental fire imagery and its then-shocking offer of fellatio. In place of Madonna’s valiant life force, what we find in Gaga is a disturbing trend towards mutilation and death…

I mentioned Lady Gaga and socionomics in Pop Culture is Filth

2010-09-10

Euro and euro shorts flat

Some developments this week were:
Ireland's Banking Crisis: Ode On A Grecian Turn
Greece Hidden Debt, Goldman, Anglo Irish: Compliance
EU Probes Hidden Greek Deals as 400% Yield Gap Shows Doubt
Trichet calls for tougher euro rules (Quantum Leap)
Eurozone members that break the region's rules on public finances should be excluded temporarily from Europe’s political decision-making, the president of the European Central Bank has proposed.

The controversial suggestion by Jean-Claude Trichet, in an interview with the Financial Times, would be part of a “quantum leap” in the governance of Europe’s 11-year old monetary union, needed to prevent a future Greece-style economic crisis.
I doubt the euro shorts will be holding steady for much longer.