Hi CB, as you noted, another cool post. The thread is dynamic, if not right nor wrong.
<<Kenichi Ohmae … Chinese economy is so strong …>>
The Chinese economy is ‘strong’ because of a few reasons, some good, some not so good. The following is not an exhaustive list:
(a) Internal pent-up demand for housing due to high savings, saving rate, lack of safer alternative investment opportunities in (as opposed to speculative opportunities), tradition value placed on home and family, and recent government reform policy on property rights and the developing home mortgage policies;
(b) All associated spending related to housing – appliance, decoration, car, etc;
(c) Lowered international deposit rates allowing domestic interest decline;
(d) Government infrastructure spending based on deficit spending allowed by international and domestic conditions;
(e) Export increase impacting jobs and overall economic activities;
(f) Continued strong foreign direct investment flow due to ‘China as manufacturing base’ impetus and WTO expectations; and
(g) Embryonic speculative mania in stocks (not yet in asset prices).
China’s economic health means everything to me, in that when events hits the skids in the China economy or any sub-sector, the divestment in sub-sectors results in additional positive revenue for my divestment business. And when the China economy is doing well, I do well on the inward investment flow. You can say that I got them coming and going. We make more money, hour for hour, on helping others to divest than invest, because all investors believe they are genius, and all ‘divestors’ are really humbled and already ground up into little morsels of giblets.
The health of the US economy, the strength of the USD, and US inflation does affect my mood because, in actual fact, my HK assets are denominated in USD terms, the majority of my liquid NAV are similarly and normally denominated in USD, and my business revenue is also denominated in USD.
<< … Hong Kong stock market is tanking? Can this be affecting your perceptions?>>
I do agree that Hong Kong has always been a good barometer for SEAsia, Europe, and most importantly US, Japan and China’s economic health. Hong Kong’s business is very intimately linked to that of the latter three countries’ health.
Hong Kong is and will continue to undergo asset deflation or stagnation, waiting for either world ex-China to recover or China to catch up. We don’t know from where the money will eventually come from, but come it will, in time, always.
HK economic and financial health really does not attract much of my attention other than as a barometer for its trading partners’ health, because I do not pay any attention to HK asset prices or stock market conditions independently of the external drivers of price levels. I really only just live here, enjoying its freedoms and attractions.
My HK industrial properties were always meant to be a free cash generator, an allocation to real estate (something I can not actively manage and trade) unencumbered by debt, with potential for eventual liquidation at tremendous profit, or simply at least breakeven on purchase cost. I bought the properties at Asian financial crisis low and I charge a 30-40% (due to fact that I did not increase rent since purchase) lower than market rent to obviate need for tenant hassle. They are meant to be an interest-earning bond, with a HK real estate call option attached. I have never re-valued the paper value of the properties since purchase.
My HK home is not a part of my MS Money NAV calculation and my symbolic home mortgage can be paid off completely at any time. I am financially very conservative despite the way I behaved during my Softbank Chronicles phase.
We ‘Hongkongers’ really do understand and appreciate the value of freedom, and the cost of big government. While we are not prepared to die to defend our freedoms (no point dying), we are prepared to vote with our feet and NAV at a moment’s notice. Everyday is an election day, and every dollar is a vote. Given the number of big capitalists concentrated in a few square kilometers of central business district, some voters really matter to the politicians.
<<”The pool of money was poisoned by unsupportable debt in the private sector”
Grace's point is that this isn't true for all sectors of the economy.>>
The pool of funds is a single pool of many funds as opposed to many pools of funds. The debt poison is deeply penetrating and broadly and systemically acting. The poison does not need to paralyze the entire collection of sectors all at once, but only need to pulverize the weakest links within each sector, and then the domino / avalanche effect will take hold, marked off only by the equation of time, successively driving to the defining event.
For a current example, the politicians want to privatize a part or whole of the Social Security system. They look into the part of pool that supposedly holds the SS water, alas, they find a piece of paper that can be made good by either government borrowing from the market place or by taxation.
The eventual impact of debt down grades on the delinquent corporations and municipalities and states, will invariably affect the amount of water available to the small/medium enterprises and their customers. There is no New Economy, there are no invulnerable sectors. The system is a whole aggregate of interlinked subsystems, each designed with a fault tolerance that may not be mutually compatible. A weakened system will behave in unpredictable fashion, and it is best to leave the scene where most trouble may happen.
Grace’s recommendation, if made explicit, is to shop and buy the small/mid caps still valued at say at 20 P/E. This is an idea, but may not be a good one.
Chugs, Jay
BTW: Ohmae's overall agenda of "Japan saying No" has been clear to all informed observors since he was in McKinsey, and he is the correct actor for the script I believe in. |
