Thomas Wagner

China's Growth Is No Miracle

I spent seven years traveling to China as part of my investment advisory and trading practice. While i do agree with the author about the potential negatives of Chinese bank lending, i do not agree with his assertion that millions have migrated to the cities and are now starving and out of work. My contacts in several provinces have confirmed that small company loan growth, personal income's and the general standard of living continues to rise in China, despite the slow down in exports. I also cannot ignore the logic of XIN post above. Sounds like he or she is chinese and has a first hand knowlege of China. The fact that China does control the banks and influences SOE capital spending plans does give it a more efficient mechanism to stimulate growth through monetary and fiscal policy. To a certain extent China is in a sweet spot. If it wants to stimulate activity it still controlls the SOE's as well as the Banks. At the same time it has had the benefit growing millions of private enterprises over the last 15 years that now dominate its domestic economy. That being said, directed economies are usually the most inefficient allocators of capital. Im hoping that the Chinese gov't has learned its lesson when it comes to directing production. The best way for China to ensure a stable domestic growth is to make capital avaliable to the small and medium private enterprises that now dot the landscape and dominate the creative talent in China. Pension reform and medical insurance company regulation would go a long way in providing a safty net for that segment of the Chinese population that is still saving instead of spending.

Renminbi Not Ready for Prime Time

I agree with the author, the RMB is no where near becoming "the" reserve currency for all of the afformentioned reasions. This however is not the issue. The real issue is does the US dollar cease being "the" reserve currency and one of say several currencies used by foreigners to store liquidty.

The latter occurence alone could create a massive disruption in US dollar denominated markets as well as effect our gov't ability to finance itsself at what have been way below market rates.

This latter issue is the one that I have been addressing in my recently posted articles and a possibility that I believe is being under estimated by the obama administration as well as those in the financial community.

Why China Will Continue to Buy U.S. Treasuries

I wrote about this senario several months ago and at the time no one believed that the chinese would contemplate selling there Treasuries. I see them trading them for commodities and investments in latin america and africa. I continue to be amazed at the sheer audacity of the Americans who state " they have to buy, were are they going to go". If this continues were on track for 14% interest rates and double digit inflation. A Chinese sell off of treasuries will make the 1974 oil shock look like a walk in the park.

The Reality of Government Spending and Money Supply

Very good article on what theoretically should happen. Unfortunatly most gov't, including ours, are now printing money in the form of treasury notes, stimulus payments and bailouts. This is being matched by foreign banks such as China, which on one hand spends 586 billion in stimulus payments and on the other promises the US that they are "not going to aggravate the current financial crisis by selling there US T-note holdings. Unfortunatly, you can only have your cake and eat it too for a limited period of time. Right now the balance sheet is holding as investors buy the dollar our of necessity to unwind derivative positions. Look out below when the hedge funds liquidations and unwinds are done.

China: Analyzing Trade, CPI Numbers

GDP = C+I+G+(x-m) consumption plus investment, plus government spending,plus imports- exports or net exports.

I just dont see consumption and government spending growing at a rate necessary to offset the drop in exports.

The real question is will china also suffer from a global "margin call" as foreign fixed direct investment slows to a crawl. I think we are already seeing a net outflow of funds from the residential real estate market in the eastern cities as this was a no brainer one way trade for foreigners.

New York Fed's Model Predicts End of Recession in 2009

The model relies on the theory that a positive sloped yield curve, one where long term rates are higher than short term is predicting or imputing an inflation rate. I think one must adjust the model to a relative one that takes in to account the relative rise and or fall at various points on the yield curve in relation to one another. Plotting the relative change of short term vs long term rates over time would probably yield a different prediction. This time around short term rates plunged as investors across the yield curve ran for the cover of short term liquid T-bills. Overall the entire yield curve moved down with the exception of 20 Yr plus rates. I think the next shoe to drop will be in the long term agency market as this is heavily populated by foreign investors. In short this time the model is being driven by extream deflationary forces that have not been fully considered.

It's 1974 for the U.S., but 1929 for China

Hello Peter; I am a fellow blogger on this site. I have spent a great deal of time in china, mostly in Chengdu Sichuan. I have developed contacts in 37 cities in china and have frequent contact with them. There have been bankrupt companies in Guangzhou particularly in the toy and low end fashion industries, however the rest of the economy seems to be pretty vibrant. Can you provide us with some source material or references about your observations about what is going on in china ????. Do you have contacts within china or is your article based on second hand information?? In short the best argument would be to disclose you sources and your outstanding trading postions if any
Thanks
Tom Wagner CFP
Quantitative Advisors Inc
planneronline.com

Inflation, Deflation and the U.S.-China Relationship

First, Id like to thank everyone for reading and commenting on what I hope will be a series of articles on globalization and the markets. Second, id like to apologies for the delay in responding as the markets have been keeping me quite busy.

I think readers should understand that I have spent the last 7 years traveling to mainland china, Ive visited 37 cities with a focus on central and western china. So unlike most analyst that base there conclusions on public data sources, my conclusion are the product of 7 years of collecting my own data. Ive been on the ground and kicked the tires, traveled to countless factory floors, trade shows and local pubs. Ive also met with more than my share of crooked municipal govt representatives, expats, and Chinese Shylock's. I was in the middle of the SARS epidemic and fought my way out of a contruction worker protest. In short Ive seen the good the bad and the ugly in China. Furthermore I believe Im begining to understand the Chinese mindset having lived in china with my Chinese wife and relatives

The first two respondent's raise very valid issues. Mainly that SAFE must continue the sterilization US dollars as long as they have a trade surplus with the US. Similarly, the Chinese treasury cannot immediately divest itself from dollar denominated assets. Secondly, communism has generally been a very poor allocator of capital. While also imperfect capitalism is a far better allocator albeit with the unenviable byproduct of volatility.

However, I would submit that China is not a true communist country and the US is not a purely capitalist country . In my next article i will fully address how china's currency regime has supported a virtual one way flow of capital while avoiding the adjustments that free market equilibrium models normal exhibit. Ill also look at the some of the policies I expect to see the Chinese to employ as it becomes more apparant that the US is headed into a very long period of recession. I will also address how the quantitative easing by the US fed and massive increase in US treasury debt are furthering these huge imbalances in the global equilibrium model.

\Very simply the US govt is running out of options and is now engaging in poorly thought out politically driven actions that may in fact change the America way of life for a very long time .

In the meantime, keep the comments coming as I will attempt to answer everyone who takes the time to post.

Thanks
Thomas E Wagner CFP
planneronline.com

Fed Manipulation of Mortgage Rates Continues

Anyone who wants to see real manipulation should check out the table at

www.federalreserve.gov...

I believer the fed has been publishing false bid to cover ratio's at all of the 30 year auctions. Check out the table, do some quick math and you will quickly realize that the fed and treasury are running the worlds largest hedge fund. Shifting the private debt burden to the public balance sheet works for only so long.

Someone should really stop this manipulation as it will eventually lead to another great unwind. The question will then be who will bail out the fed.

ETF Billion Dollar Club Gets Smaller: May 2009

I suspect that the FED's plunge protection team is also keenly aware of the above. Take a look at the IYR/SRS and SKF on a day like today with the market down 140pts and interest rates rising on the long curve neither SRS or SKF are showing any upside movement. Now who do you think may be in buying today to support these?????. I think uncle ben and company have fiqured out they can short circute the shorts by taking the opposite side of there leverage trading vehicles

China and Brazil to Ditch U.S. Dollar? Hardly

Im somewhat puzzled by the author's assertion that China and Brazil are far away from settleing there current account transactions in BRL/RMB. In fact they already are. When Brazil purchases goods from China it pays for them in BRL and the sellor of the good is allowed to hold BRL or convert them to RMB throught Chin's SAFE. SAFE either sells it on the open market or increases Chin'a foreign reserve account. Most transactions are mearly invoiced in dollars as a matter of convenience, but they are not necessary settled using dollars as a cross currency. So the fact that they may or may not invoice in dollars is really irrelevant. I seriously doubt any BRIC company settles transactions by first converting to dollars then to the payee's currency. The simple fact is that as trade increases by and between BRIC countries and decreases between the US and BRIC countries the importance of dollars is deminished. More importantly the necessity of holding dollars and dollar denominated assets is deminished. Something Ive discussed in my recent articles.

Real Estate Values: The Real Truth

Given your 1st assumption :

" The median house size increased because of new construction, with typical homes exceeding 2,100 square feet versus existing homes with a median square footage of 1,850."

Assuming argumento that this is correct any mesure of median home price would under estimate the move in price per square foot since median sq ft has increased as well.

Since avg sq ft has increased by 13.5% a median home price fall of 19.5 % should be adjusted upwards by (.135X.195) or 2.6%. This would give you an adjusted price decline of 22.13%.

Your article seems to suggest the inverse. Please correct me if Im reading this wrong ( anyone)

China: Exports vs. Domestic Demand, The Argument Rages

Hi Michael: As always a great article. Having traveled a good all over the interior or China, my observations are somewhat different than the last poster. I continue to believe that small businesses are alive and well and thriving in most of China, especially in the interior provinces such as Sichuan.

My home base of operations is Chengdu China. My local banking contacts continue to claim that smal loan growth in the 1MM -2MM RMB range continues to grow by double digits. A recent discussion with a middle market lender at Bank Of China also confirms that loan growth is through the roof in Chengdu.

In my travels throughout china it has always been the small business growth that has amazed me. What are you observations, if any, about the small business growth in China and its role in increasing domestic consumption.

Nasdaq 100 Bounces Nicely Off Its 50-DMA

My NDX 100 Chart from prophet.net has the NDX100 50 day moving average at 1276.00

The 20 day simple moving average is apox 1372.61. What am i missing ????????

@Traders Expo: Government Unity, End of Mark-to-Market Accounting

HI Brian:
I also tried to review the show on behalf of seeking alpha. Have any luck on reviewing the paid programs at the show????/