As predicted, the Great Rebalancing begins

One season ago, on my October 21st 2010, "Open the flood gates, why RMB should be freely floating"(http://globalmacrosport.blogspot.com/2010/10/open-flood-gates-why-rmb-should-be.html) blog post, I advocated China should let their exports raise by 20-30% (and their RMB to follow suit as well).

Viola, in January, NYT reported it is exactly what is underway with Chinese exports:http://www.nytimes.com/2011/01/12/business/global/12inflate.html?_r=2&ref=keithbradsher

One step ahead of the curve (my other "hit" http://globalmacrosport.blogspot.com/search?q=ahead+of+the+curve) is all we need. All anyone ever needs!

As predicted, the Great Rebalancing begins

Reflections on Amy Chua's hypothesis on Global Empire Histories

Amy Chua recently came to London and I attended her talk. She was mostly promoting her latest book about parenting. I have been more intrigued with her second latest book, "Day of Empire".

In Chua's Day of Empire, she talks about how the Roman empire was the only empire which has solved the problem of "glue", or creating the sense of "Roman Identity" among the subjects from everywhere within this vast empire, and this common, shared identity serves to "glue" them together as "Roman" and therefore, preventing them from wanting to break away fairly quickly as all the other subjects of past empires did.

My hypothesis to resolve this "glue" riddle for the Roman Empire is this: Most citizens were not "ethnically" Roman to begin with, as Rome, originally a city state just like all the other Italian cities (Florence, Venice, etc) was such a small percentage of population of the vast Empire. Thus, everybody had this consensus or common understanding that to be a Roman citizen is truly just a "legal identity", not a racial, or genetic or even geographical identity.

Therefore, the Spanish "Roman citizen" was as "Roman" as the Egyptian "Roman Citizen", or the British "Roman citizen", they are essentially all equals, no groups have particular "stronger" claim to be Roman citizens than any other groups within the Roman Empire (except the slaves, of course).

Same cannot be said about the other super powers/empires, where the ethnicities of the "Conquerors" were a strong part of the identity of the whole empire. They were the "upper/master class", the elites, the rulers, versus the subjugated, the conquered, the "peasantry" or even worse, the "underclass", which often characterised the situation of the conquered peoples. Thus the "conquered" usually wanted out, or to rebel at their earliest opportunity in a bid to escape the oppressive treatments from the "ruling" ethnic group.

I disagree with Amy Chua's prediction on China have not got the potential to be a hyperpower, as defined in her book of Day of Empire, because I think she has a wrong assumption about the Chinese character.

With all due respect, I believe Amy could understand the Chinese reasonably well based on the fact that she is ethnically Chinese. However, Amy has this brave assumption that Chinese "believe" what defines "China" is based on the Chinese ethnicity/blood. We all know about Japan's intolerance of immigration and their inclination to maintain the "pure blood" quality of Japan and therefore, maybe that led Amy Chua to assume that Chinese has the same propensity of lack of tolerance for immigrants.

As a Hong Kong Chinese most of my life, I believe the Chinese have great potential of welcoming foreigners not only to live with them but to settle (for generations) with them. My observation is mostly based on the Hong Kong Chinese culture. With our colonial history, Hong Kong has a great percentage of foreigners settled happily and peacefully with the Hong Kong Chinese and there has never been any problems (racial conflicts nor discrimination) whatsoever.

Maybe it's just Hong Kong (but same can be said about Vancouver Chinese, from which I spent most of the rest of my life in). An interesting anecdote is that some mainland Chinese companies even "faked" hiring foreign-looking workers, in a bid to make their firms look more "international". Racial Intolerance? I don't think so.

Reflections on Amy Chua's hypothesis on Global Empire Histories

Euro at a cross road

I remember telling my sister and brother-in-law that Euro was in a slow-motion suicide. Not much of a future remains for the currency. That was Spring 2010, at the height of the Greece/Iceland debt crisis.

I still maintain my position on the Euro EXCEPT debt-ridden Euro countries like Ireland would default on their EURO debts.

My original position assumed that ECB/IMF would essentially "rescue" every troubled EURO country by issuing more of the EURO out of thin air and every debt-ridden EURO country would just accept the "help". Turns out that's quite an assumption to make.

If Ireland rejected the "bailout", EURO, as a currency, might be spared of a premature death. However, short to medium term, there would be tremendous turbulence for the EURO currency due to the soverign defaults. When the dust settles, the investment world would once again recognize the "soundness" of EURO as it's debts are not monetized into oblivion and adapt their investment decision making to focus on only sound EURO credit nations like Germany or France.

Gold and silver used to be the currencies of all nations in the world, the fact that certain nations went bankrupt didn't make Gold or silver less functional as currencies at all.

Moreover, unlike the USD from the United States, where there are tremendous foreign interests from all over the world "NOT" wanting USD to go kaput (due to their massive USD securities holdings, especially in US treasuries), which, thus, must NOT default, EURO has much smaller of the "reserve currency" role compared to the USD, so the default of even half of the EURO soverignties might not be as hazardous as the defaulting of US government debts (I just realized the coldness of this statement but less face it, defaulting means not paying the debt, it's a "good" thing for those defaulting countries in a sense).

Still pretty bad, of course, but not the worst.

Euro at a cross road

Open the flood gates, why RMB should be freely floating

Well, the most common excuse or reason for China to not want an appreciation of the RMB against USD is that, alledgely, the Chinese export industry has waffer thin margins, say 2-3% only. To which I say, raise the prices ahead of time before letting the RMB go up. Why? China is NOT Japan, despite the fact that the Chinese economy has already surpassed Japan as No. 1 in Asia, the per capita GDP is still approximately only 1/10th of Japan's. Chinese workers are still immensely competitive in the world.

Sure, compared to other "Southern Asians" countries, who are much more competitive/cheaper still in terms of wages, say India, Bangladesh, Indonesian, Chinese workers are typically more productive than South Asians, both according to intelligence quotients measures and historical/anecdotal references. (Well, the averages of the IQ of Chinese/South Koreans/Japanese are similar among themselves, and we already know what the Samsungs and Sonies of the world are capable of. The Taiwanese are part of the Chinese flora as well, Acer lovers anyone?)

So, I am willing to gamble that hiking the prices of goods, say by 20-30%, and then let the RMB freely float and move up by say another 20-30%, which would result in the compounded effect of a price raise of say 50%, is still going to be "competitive" and cheaper than stuff made in the US of A/Europe/Japan and they will still HAVE to go buy stuff Made in China.

Of course, then the South Asians would invade into Chinese's market share, but China got to buy their raw materials cheaper by 20-30%, that's gotta juice up the margin (plus the original price hike, which is a 50% up in profit margin), making up, at least in part, of the lost profits from the shrinking revenue.

Did I mention the BONUS of getting US off of China's back by eliminating the excuse for the US to violate WTO rules by slapping tarriffs on Chinese goods? Sounds like a plan?

Open the flood gates, why RMB should be freely floating

My favorite alumus scores points on big geopolitical trend

Finally, United States is scaling back on her military endeavor and who "knew"? Niall Ferguson, as well as probably many alums like humble little me. Here is a link on me chatting with a gold fund manager about this "prediction" on his blog over half a year ago.

Julia Wong said...
Another theory of the ending by economic historian Niall Ferguson:

http://www.niallferguson.com/site/FERG/Templates/ArticleItem.aspx?pageid=226

Basically, as a historian, he predicts the "U.S. empire" will be shrinking her military to cut costs.

MONDAY, 11 JANUARY, 2010

History is what happens a second from now and listening to the right historians can means everything for your future. I knew that Oxonian is the "right" guy to listen to.

My favorite alumus scores points on big geopolitical trend

Taking credit on the "there will not be hyperinflation" call

Back in October 2009, I put out a debate arguing it is more likely to be "Japan style deflation" than hyperinflation in the medium term: "4) Japan again. Yes, compared to the size of GDP, Japan has "printed" much more money then the United States and have an even bigger public debt than United States. Meanwhile, Germany, Australia, UK, and many others have much bigger size of "external debt" as a % of their GDP then the United States as well. And yet they have not imploded to Zimbabwe style hyperinflation. In fact, when you examine the way the Fed and the U.S. Treasury is collaborating, so long as there is a willing buyer (the Fed) and there is a "preference" for low interests rate(for U.S. treasury to trim the interest bills), in our case, for both of the debt-ridden Japanese and U.S. government, the arrangement will be "stable": meaning BOJ and the Fed will keep on holding near zero interest rates on the one hand and soaking up any excess issues unsold to the open market/monetizing the public debts and as far as any one can see, and this can go on for quite some time as long as 1) holds, which was what has been happening in Japan for close to 2 decades now." http://globalmacrosport.blogspot.com/2009/10/why-hyperinflation-with-usd-is-probably.html

After more than half a year, investors have discovered for themselves that that is indeed the case despite it was the unpopular, counter-intuitive "platform" back then!



I suspect, that post (also available on Linkedin's discussions) even got Barack Obama's followers or the US President himself's attention as can be seen on my linkedin profile with "Viewers of this profile also viewed..." (you got to sign in to Linkedin to be able to see this curious phenomenon):
Barack Obama, President of the United States of America

Well global macro view does not only REQUIRE years of experience in the investment industry and a great education but a WIDE world view, ahem, like someone who has live experience in Europe, Asia and North America, ahem, kinda like the author of GMAAS (Global Macro As a Sport).

Taking credit on the "there will not be hyperinflation" call

"The tragedy of the commons" = society's future generations

The concept is originally used to describe the depletion/destruction of a shared resource like the fish in the oceans or the forests on earth etc.

Seems like it applies to "debt burden on our children" or exploiting "children" as a resource as well.

How?

Well, in the form of mountains of debt, high taxes to pay off such mountains of public debts and lowered disposable income and thus lowered quality of life for the children and their own children and so on and so forth.

And Japan is exacerbating the problem by having fewer and fewer numbers of the "children resource" to exploit, hmmm...........

"The tragedy of the commons" = society's future generations