Enough Wealth

Hugh Hendry on China – The Emperor Has No Clothes

I wouldn't care to guess. In theory, all the vacancy (and more) will be used up as China's massive rural population continues to urbanise and the economys' industrial revolution continues for the next couple of decades.

Then again, if the GFC impacts China's real economy too much (ie. the expected domestic demand isn't sufficient to keep the economy growing strongly enough the create all the new jobs required to urbanise the rural population and lift living standards) then there will be massive oversupply and a Japan-like property valuation crash.

I've no idea how China's GDP growth will turn out over the next few years. But if the current growth that is due largely to Chinese government stimulus spending trails off, things could get ugly very fast.

60 Minutes on Oil: Did Anyone Verify Anything?

The EAI report predicts oil prices to average $51 in 2009. But that price was cut from $63.50 in just one month and could drop further, so below $40 in the short term doesn't seem unreasonable.
"WTI prices are expected to average $51 per barrel in 2009 (Crude Oil Prices), down from the $63.50 projected in last month’s Outlook."

Unfortunately the EIA projections are dependant on how good their guess is for 2009 global GDP. They had revised their previous month's forecast significantly:
"World real gross domestic product (GDP) growth is projected to slow from about 4 percent in 2006 and 2007 to about 2.7 percent this year and 0.5 percent in 2009. Last month’s Outlook assumed world GDP would increase by 1.8 percent in 2009."

I'd guess that there is more downside GDP risk than upside. The EAI, however, only seem to focus on potential for growth to surprise on the upside, which suggests they are biased towards the upside for oil prices in 2009-2010

"If the world economy recovers sooner or is stronger than EIA now anticipates, oil consumption could decline at a slower rate or potentially increase instead, putting upward pressure on oil prices."

Lower (or negative) global GDP in 2009 could see production oversupply for many months, which would see spot oil prices plumb new depths. It would be a great buy for the longer term, but I'll be cautious about buying for the long term just yet.

524,000 Jobs Lost in December; The Economy Is in a Depression

I hope that the US economy recovers fairly soon - a prolonged string of recessions and weak growth like Japan experienced in the past couple of decades would be disasterous for the US and debilitating for the global economy. If the US indeed enters a depression rather than a severe recession, it would be extremenly dangerous. I've seen some opinions that the Great Depression was only ended by the stimulus effect of WWII. I'd hate to have to rely on WWIII to get the US out of a depression!

On the other hand, I can't really feel too concerned if US real wages and living standards decline as a result of Chinese wages and living standards rising at the expense of the US. After all, there is a huge cap in living standards around the world, and although it would be nice if the rest of the world's population enjoyed rapid increases in living standards while the US continued to maintain or improve, it's more likely in a world of limited resources and global pollution problems for equality to be achieved by US (and other developed countries) standard of living declining while the developing and emerging economies enjoy somewhat improved standards.

Apple's iPhone 2.0 'Bigger than the Personal Computer'

Seems that most other commentators disagreed with me ;)

Perhaps I should have been an instant convert and bought AAPL at $125? Pity it's now $85 and heading south... (I know that the whole stock market has gone down, but look at APPL vs. MSFT since the article was written)

My point about Apple products being "too expensive" was simply that while the Apple OS has been consistently better than the contemporaneous Microsoft OS, it is too expensive for the majority of consumers taste, because it comes bundled with Apple hardware. As far as I know you've never been able to order the cheapest available desktop or notebook hardware and choose to install either an Apple or Microsoft OS ;)

BTW, TCO comparisons don't mean much to home PC users or small businesses that only run a couple of basic apps (word processing, spreadsheet, accounting) and don't run a help desk etc. If you want an example of the price gap I have in mind, just look at the cheapest Apple notebook PC compared to the cheapest Dell laptop. Yes it's a comparison of apples and oranges (eg. performance, ease of use etc. isn't comparable) but my point was only that sticker shock might be an explanation for the relatively poor market share of Apple in the desktop PC space over the last couple of decades.

I'm just not convinced that the iPhone will capture as big a share of the mobile phone marketspace as the Windows PC gained in desktop space. Perhaps that's simply because I'm still getting by with the "free" 3G mobile phone that came with my $14/mo phone plan. It has a crappy keypad, miniscule screen, and ho-hum camera. It has internet access, but I never use it as it's easier to access the net with my desktop at work or at home. I've never felt a need to surf the net or watch movies on my mobile phone. Apart from the odd snap-shot with my phone, I use my digital SLR for taking photos. And I use a $200 GPS for driving - a phone-based GPS might do just as well, but would cost as much per month as buying a dedicated GPS outright.

So, on the one hand you have some consumers that just won't be interested in an iPhone-style mobile phone unless it's super-cheap (never an Apple selling point), and on the other hand they'll be phones from other players like Samsung, Nokie, RIM etc. that will eventually "get it right" and come out with a model that's as good as the current iPhone iteration.

Of course I'm probably wrong - after all, I decided not to buy any Microsoft shares when they listed in the 80's (I though they were overpriced!)

Consumers Spending Less Than Justified by Actual Income

"People are spending less than normal, less than justified by their actual incomes" - you assume that what was previously considered to be "normal" was a sustainable ratio of spending to income . Over the past couple of decades consumer debt has been used to allow people ot spend more than their actual incomes, as shown by historically low (even negative) savings rates. That sort of profligate consumer spending was a boon to economic growth rates while it lasted, but was impossible to sustain indefinitely. Over-spending only continued for as long as it did due to the "wealth effect" of over-priced assets (real estate, equity markets). Now that several asset bubbles have deflated, people will be more concerned about the ratio of repayments to income. In this situation, it seems likely that spending will decline more than would be expected from looking at income levels in isolation. You can't make a convincing "all other things being equal" arguement when the world has just experienced a paradigm shift.

After Fiscal Stimulus Is Applied, Inflation Will Be Hard to Avoid

This seems to assume that deflation is relatively easy to "fix". If the initial stimulus doesn't work and deflation becomes a reality, there is no certainty that additional quatitative easing would be effective in reinflating the economy. Once consumers start to expect prices to be lower next year than now, freely available credit and low interest rates (even 0%) are no longer effective in getting consumers to spend. That's why deflation is so feared by central banks around the world.

America the Broke

Since when did NATIONAL debt equate to PERSONAL debt? The nation's net worth includes a whole lot of assets that aren't on the balance sheets of the nation's citizens - for example, untapped natural resources, government-owned real estate, rental on intangiables such as air-space access rights etc. etc. The citizen's net worth only includes private assets, not public assets.

While it makes sense to compare total personal debt burden with citizen's total net worth, comparing national debt to citizen's total net worth doesn't.

But it makes a nice headline ;)

Looks Like It's Time to Buy Oil

I think oil has great potential as a long term commodity investment, and the current global meltdown will provide a once-in-a-lifetime buying opportunity. However, I think I'll wait until oil has stopped falling and has started to show some sustained gains again - say up from $40 to $50, or from $30 to $40. Buying while it's still within a major downtrend and trying to pick a bottom is too high risk for me ;)

And You Think Today's Gas Prices Are High?

It's even cheaper today if you also take into account the fuel efficiency of modern cars compared to the 70's and 80's or earlier.

eg. A plot of the cost to drive 1,000 miles in a the 'average' car for the period vs. per-capita disposable income.

The Great Oil Deception: Part Two

Even if the cost of production facilties, drill rigs etc. is largely cyclical, that doesn't mean the cost of finding oil isn't on an exponential upward trend. That's because the cost of finding oil depends on the ratio of wells dug to commercial oil fields found. I don't have the data available, but I've got the impression that the number of exploration wells dug per oil find has increased, and the average size of finds has been getting smaller and smaller. Also, although the cost of like infrastructure may return to previous real cost levels after the current speculative bubble in oil and commodities corrects, the nature of production equipment required has changed over time - these days there are few new large oil finds conveniently located on land, instead, new production is off-shore, and tending to be in deeper water (and therefore need more expensive production facilities).

If you have the data, it would be interesting to see a plot of number of exploration wells dug per GL of oil resource found, and also the average size of new production fields brought online over time.

Is the US Dollar Doomed?

The USD is not doomed, just heading back down to the 5 peso value it had in 1995...

Although high inflation kills a currency over time, it's not the short-term increase in inflation due to oil prices etc. that is the biggest problem. Rather it's because the US government runs large deficits over an extended period.

Being a foreign investor or government holding USD is a bit like an investor with shares in a company that keeps issuing new shares in order to raise funds that are then spent unwisely. Eventually the shareholders will stop taking up the share issues, and will start off-loading their stock, causing the price to tank.

Apple's iPhone 2.0 'Bigger than the Personal Computer'

Maybe -- but I wouldn't bet on it. The Mac OS has been better than Windows for more than a decade, but it still can't get more than 10% of the desktop market. Why? Too expensive.

The same will probably happen with the iPhone. There's a certain percentage of the market that will pay a premium for the iPhone, but the rest will just go for a cheaper alternative that provides a *similar* product for 20%-50% lower pricing.