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  • What Putin Hath Wrought: Russian Economy Caught In The Consequences Of A Commodities Curse [View article]
    This is an important article.

    Look at that first chart which shows the relationship with the real effective ruble exchange rate and non-oil exports.

    It is shocking.

    This is the U.S. This is why we should not issue export licenses for raw crude or natural gas. The employment gains in exporting raw materials are insignificant. The cheaper raw energy prices will create domestic employment by huge investments to make use of those energy inputs.

    The declining manufacturing sector in the U.S. is a reflection of our overvalued currency. A major factor in that is our low savings rate which means we import global savings. This raises the value of our currency and destroys domestic manufacturing jobs.

    What a mess.
    Jul 28, 2015. 05:49 AM | 7 Likes Like |Link to Comment
  • Bridgewater Turns Bearish On China? [View article]
    Dear Reader..

    The author has given himself a number of outs during this article to be able to later explain why he missed the bull market in China.

    China is not the U.S. The U.S. is close to one of the only countries where the state does not have an economic policy and is active in promoting economic growth.

    China's GDP per capita in 2014 (World Bank) on a PPP basis (purchasing power parity) was $13,200 per capita. The U.S. number was $54,600. The China number is 24% of the U.S. number.

    A comparable level of development is Japan of the early 1960's. Or South Korea of the early 1980's.

    The Chinese equity market is quickly going to be 25% of global market capitalization. Global investors are going to need exposure to this market and this going to create enormous continuous demand for Chinese equities.

    And then you are going into a market with a domestic savings rate of over 40%. What is the U.S. domestic savings rate? Not good. Of course, our academics think it makes no difference if we borrow the money from foreigners to make social security and medicare payments.

    You can purchase Chinese companies that trade on the Hong Kong Stock Exchange at 10x earnings. The U.S. market is at 16x. These Chinese shares are called H shares.

    Most importantly, the exact same companies trade on the Shanghai exchange at 17x earnings. That is quite an arbitrage. My guess is that Japanese and Swiss global investors will make a move to take advantage of this disparity.

    First Trust Alphadex China (FCA 24.30, S&P 2092) offers an easy way to gain exposure. I have no connection to this etf.

    Japan, South Korea, Taiwan and Singapore were all able to achieve growth rates of 7% at similar development levels. China just needs to copy what they have done. Yet, at every turn they have done better taking advantage of the previous policy mistakes.

    I think that this attitude towards China has nothing to do with investing analysis or economics. The marketing people at these hedge funds are telling the investment managers that they are unable to raise new money because of the China positions.

    The solution is easy. Get rid of the China positions. If you don't think this is what is going on you don't fully understand the money management business.
    Jul 24, 2015. 11:07 AM | 3 Likes Like |Link to Comment
  • China, Greece, Japan - Oh My! [View article]

    It has been some time since I looked at this issue. This article from the IMF is on this subject.

    I would just add that I have made some great calls by using GDP per capita and therefore being able to look at Korea or Japan of the 1960's as the relative comparative rather than the current U.S. data.

    The IMF and the OECD both use PPP. The World Bank uses market rates.
    Jul 16, 2015. 12:32 PM | 3 Likes Like |Link to Comment
  • China, Greece, Japan - Oh My! [View article]
    Dear Reader..

    The author is expressing the economic global viewpoint of the Wall Street Journal with clarity.

    The facts are that China manufacturing wages and typical wages have been rising at a rate of nearly 10% annually for the median worker.

    I know that the U.S. is doing so much better that this might not seem like much.

    Retail sales are up in excess of 10% from the prior year. This is consistent with GDP growth of 7%.

    Chinese GDP per capita of $11,000 is roughly 20% of U.S. GDP per capita $52,000. GDP growth of 7% per year was accomplished in Japan, Korea, Taiwan and Singapore at similar levels of development.

    China's economic managers should have an easier time growing as they can learn from the mistakes of those that preceded them.

    Chinese stocks trading on the Hong Kong Stock Exchange are trading at prices substantially below similar U.S. companies. These are called H shares.

    At some point global fund managers will need to make major investments in Chinese equities because most of these managers index.

    In China the capital gains tax is zero. Zeroo. They have a savings rate in excess of 40%. All of the previous countries had a similar capital gains tax rate during their high growth periods. The potential demand for investments is enormous.

    The problem with going with the herd with your investment advise is you lose as much money on your personal wealth as the client. In the end, how much you make on your own assets is going to have a bigger impact on your retirement than going along with the media and the academics.
    Jul 15, 2015. 11:49 AM | 5 Likes Like |Link to Comment
  • Bull Market In A China Shop [View article]
    As someone who spends a bit of time doing macro research on China let me make a few points in disagreement.

    My comments on Seeking Alpha go back to 2009.

    Morningstar shows the p/e on forecasted earnings on ASHR (shanghai etf) as being 17.2x. Not much different from the S&P 500.

    More importantly, the multiple to cash flow is 2.6x and the dividend yield is 1.7%.

    The S&P is trading at 10x cash flow.

    The economy is not slowing when it is growing at 7% per year. The use of the word "slowing" is a media creation to attract attention.

    There is no over investment in real estate. The country is undergoing massive urbanization with wages rising nearly 10% per year. Just like the U.S.

    I have read maybe 30 annual reports from Chinese companies. They all had auditors who were subs of the large U.S. auditing firms. I felt their disclosure, was overall, better than similar U.S. firms.

    China, on a per capita GDP basis, is at a level equivalent to Japan in 1960. And think of the market run you had.

    Japan in 1989 had allowed their currency to undergo massive appreciation rather than moving their trade imbalance offshore.

    This is why China allows its currency to appreciate slowly.

    By the way, the Japanese are still rich and mighty.
    Jul 10, 2015. 11:11 AM | 3 Likes Like |Link to Comment
  • Bull Market In A China Shop [View article]
    What collapsing real estate market in China?

    I would like to know a reference for that statement.

    The Chinese government controls the level of development in China because they sell the land to the developer. They set the price of the sale and the amount of land available. This is equivalent to a massive consumption tax on real estate ownership and is used to fund infrastructure.

    When you are planning an economy to grow 7-8% per year you need to build ahead of demand. That is one of the reasons we grow at 2%.

    In 5 years China will represent 25% of global GDP and institutional investors will be forced to place investments. This creates constant long term demand for China equities.

    The author states the stock market is a zero sum game.

    I would like to know the reference for that statement.

    If you are growing an economy at 7% per year the equity market should be able to move 10% per year long term. That doesn't sound like a zero sum game to me.

    The buyers of ASHR (Shanghai etf) yesterday were not traders. These were long term investors using the dip to put on exposure quickly.

    First Trust AlphaDex China (FCA 23.33) is trading at under 2.0x cash flow. The S&P is trading at over 10x cash flow.

    There is a zero capital gains tax in China. China managers and other countries with zero cap gains taxes manage to cash flow.
    Jul 10, 2015. 09:25 AM | 2 Likes Like |Link to Comment
  • China's IPO Freeze Misguided, Should End Quickly [View article]
    The author expresses the view of the White House in Sept, 2008 when they let Lehman fail. Oh, that was brilliant. We know, with hindsight, that they had a liquidity problem that could have been easily mopped up without causing a global meltdown.

    Luckily, the Chinese authorities have the best record over the last 20 years in economic management of any large economy. They know better than to allow the irrational behavior of the market.

    The new book on behavioral economics by Thaler, a nobel price winner, entitled "Misbehaving" gives an excellent overview of the failures of markets and why they happen.

    Meanwhile, you can buy China etf's such as First Trust Alphadex China (FCA 21.50) with a multiple to cash flow of 1.5x. The S&P 500 is at 10x.

    In 2009 writers on Seeking Alpha were convinced they knew better and that the market had more power than the Central Bank. I guess that was a small mistake.
    Jul 8, 2015. 08:53 PM | 1 Like Like |Link to Comment
  • Assured Guaranty Ltd: An Undervalued, Special Situation [View article]

    Thanks for a great article on a well managed company.

    I see there is no discussion of interest rate changes and the effect these might have on the asset portfolio.

    On page 128 of the annual report they have a listing of their maturity dates and it seems that they are susceptible to enormous loss exposure if there was a dramatic rate move.

    Since we are still near 50 year lows in interest rates I suspect that is why there is a lack of insider buying in the whole sector.
    Jul 6, 2015. 06:18 PM | 3 Likes Like |Link to Comment
  • Musings On China's Market Mania [View article]

    If GDP is not growing at 7% how are urban wages in 2014 up 10%?

    What about retail sales?

    What about autos?
    Jul 6, 2015. 03:00 PM | 2 Likes Like |Link to Comment
  • Stock Market Valuations Show A Clear Ignorance Of Economic Reality [View article]
    On Shiller..

    Shiller copied this idea of a 10 year average of earnings from Benjamin Graham's book "Securities Analysis."

    This book was written in 1933 and published in 1934. Think about this.

    In this period it was reasonable to expect a steel company (which was a major industry) that was doing $100 mil in revenue to be doing the same $100 mil 10 years hence.

    In the modern world this makes no sense. Global economic growth is around 3-4% per year. Earnings cyclically adjusted are rising over time and not flat because revenues are a rising line rather than a flat line.

    This is why Shiller doesn't work in practice. It is an academic exercise. It has gathered its author attention and money.

    Central banks determine their long term money supply targets based on their countries potential growth rate. That long term money supply creation is the fuel which makes equity markets what they are.
    Jul 6, 2015. 11:07 AM | 2 Likes Like |Link to Comment
  • Stock Market Valuations Show A Clear Ignorance Of Economic Reality [View article]
    Dear Reader..

    This article could have been written in 2009/2010. After all investors have been through they have not learned that financial markets respond to changes in financial liquidity. A weak recovery is exceedingly bullish for the U.S. financial markets.

    It allows the U.S. and all other central banks to stimulate.

    I love the M2 chart. These charts should be logarithmic. The move from 2 trillion to 4 trillion appears as the same size as the move from 8 trillion to 10 trillion. Of course that makes the most recent move in any economic statistic look like it is bigger than it is.
    Jul 6, 2015. 10:28 AM | 2 Likes Like |Link to Comment
  • Musings On China's Market Mania [View article]

    I didn't understand the comment "debt continues to grow twice as fast as nominal GDP." Nominal GDP is growing at 7% and I don't quite know what debt number you are referring to.

    Thanks for the article.
    Jul 6, 2015. 09:55 AM | 1 Like Like |Link to Comment
  • Musings On China's Market Mania [View article]
    Dear Reader..

    The author states "government intervention in financial markets has a dismal track record."

    This is what is taught. It is not correct.

    Lehman Brothers failed on Sept 15, 2008. This was a political decision, made by the White House, in order to curry favor with a large segment of its significant donors and party followers.

    In response the U.S. Federal Reserve had to deal with the facts on the ground. They increased money supply (bank deposits) dramatically. They grew from Oct to December by 12.6%.

    The money supply injections continued and the FRB turned the equity markets by March 9, 2009. There certainly were no positive events in the real economy. The unemployment rate was still expanding.

    The FRB was aware that if they waited for the normal delay in the pickup in bank lending the turnaround in the real economy would be 10 months off. Instead they intervened in the commercial paper market directly. This provided instantly near zero interest rate money on an unlimited basis to large U.S. corporations.

    These companies began to provide low cost financing for the purchase of their products.

    This direct intervention in the commercial paper market is no different from the direct intervention in the equity market.

    Now move to Japan in 2014. The Japanese elites realize they are faced with a China that is increasing its military posture by double digits every year. If they don't begin to match these expenditures they will be a target.

    Only a growing economy can pay for a military buildup. Not only do they engage in monetary expansion but they buy Japanese equities. The combination moved the market off of its stagnation.

    China's economic leaders have their reputation at stake. Investing with them is the better choice rather than the American/European academic economic establishment. Those countries that have used Europe or America as a developmental model have failed. Those who have copied the Asian model have succeeded.
    Jul 6, 2015. 06:29 AM | 3 Likes Like |Link to Comment
  • Why I See Gold Headed For $880 [View article]

    Thanks for your reply. I apologize I read the wikipedia entry for the Spratly Islands Dispute fully expecting you to be misled. That is not the case. I guess it is another example of why you do not want to rely solely on the Wall Street Journal for your information.

    I don't have time for anything else.
    Jun 29, 2015. 01:04 PM | 1 Like Like |Link to Comment
  • Why I See Gold Headed For $880 [View article]

    Thank you for your reply to my comment.

    I read the wikipedia entry for the Spratly Island Dispute. The Wall Street Journal has never pointed out that China does have a valid historical claim. My cousin, the law professor would be shocked at my quoting wikipedia.

    I apologize for my ignorance.
    Jun 29, 2015. 01:00 PM | 2 Likes Like |Link to Comment