James Lewis

25 Reasons We Will Not Have a Depression

Ugly sell off coming...

be careful, especially emerging markets

The King Canute Economy: Governments' Futile Attempt to Stem the Tide

this is a very good article...
can the masters of the universe hold back the tides indeed.

of coruse as negative as all this is, if the OECD countries can generate enrgey using clean technology and take away flows of USD to the oil countries. Then we could see a re-emergence of wealth back to the west. Also if the west shuts off imports into their markets, more domestic manufacturing could fuel added value in the western economies.

The point here is that the USA has more faith in making money in the Chinese market and by doing so become closer to China. Then to block off chinese exports and make them in their own country.

I agree that the asset bubbles created a veil of untruth and hid the underlying weaknesses of the west economies but be clear these asset bubbles were financed by the east as well. So in effect the east paid a great deal towards this fake wealth. Also the IT and technology revolution did add a great deal of real value to the western economies.

Innovation and technological advancement adds so much to an economy. More than economists can ever believe. This is why R+D pays off. The USA strategy of getting low value added goods madeinthe East while spending its time/money on R+D may pay off.

From where the US is standing I belive they know they have to create real value added to their economy. So I do not think their arrogance is blinding them. They better hurry up and they better hope they can generate 2-3 trillion/year from clean energy. If they create enough money through QE and hyperinflate the money supply by 100-150%. Then in 2020 they may be able to wipe out all their debt.

Why Krugman Is Wrong About the Yuan

Yes Dixon,

Purchasing power of US consumers is taking a hit as credit is being withdrawn. However it US consumer purchasing power was at such highs this had to happen. After all a few years ago, people with very low monthly income had the ability to buy exceptionally expensive properties with no downpayment. In China if you have no money, you can eat with no problem but you can not buy things like high end computer goods, cars and certainly/certainly not property. You have people earning 1000USD/Month buying 600 000USD houses. Bloody rediculous.

This being said the USA will trade its way out of trouble, but by the time it does so. China would have cemented its power as number two.

Why Krugman Is Wrong About the Yuan

I like your work Shaun, I have great optimism like yourself for the consumer economy in China. I agree with a lot of your work.

I have to say however I do not agree with what you have stated in this article. The USD is not weak on any long-term relative basis, purachins power basis. If you look at long term currency charts you will see it is exactly in the middle of its range. Not expensive, not cheap. Not high, not low.

You also go to say that the market is taking the USD lower due to its structural imbalance. High trade deficits, budget deficits etc. This by your own definition means you understand that fundamentalyl the USD is stronger than it should be. The truth is the USD is overvalued because Asian countries are running large trade surpluses and buying the USD, this is artifical demand because the Asian currencies are weakening their currencies by buying the USD. This is the source of the problem as a lot of Asian currencies are not based on market pricing mechanism. We all know that the USD is maniuplated by the FED through polciy from time-time. But this is different from direct peg and guided price levels.

The point here that has been missed is that Obama is ok with the RMB-USD exchange rate. As long as it goes in the right direction. 4-5% revaluing per year is exactly what Obama wants. Anything more than that will create huge issues for US companies, inflation (important when you are creating new money through QE) and the funding mechanism for the US through selling Treasury Bonds. You have said this but missed that Obama is playing lip service to hide the fact that the Europeans are being forced to take the adjustment. The USD is falling against Euro, pegged to the Yuan means that Chinese goods in Euros are cheaper. And US goods are cheaper in Euros. The US and China share common goals in this respect, I would dare to say that both parties know this at the top level.

The US does have a lot to export to China but the exports are being blocked through protectionism. Import tariffs, lack of access to supply chains, no way in to distrubution networks, technology requirements that shut US companies out, subsidy loans, local laws that require joint ventures be set up (always bad for interntional partner). This is the true issue that Obama is focusiing on. The rmb is a red herring. It allows China to show it is not bowing down to US pressure, so Hu and Wen can keep face inside the Politburo and to the nation. It also gives them a little more room to allow some advantage to the US in China's rise.

Relations between the two countries are probably better than most people think. However there are very large risks, after all Hu and Wen do not hold all the power and there are a lot of right wing policitcans abd business leaders that want to see China hold all the cards in everyway. Hu knows that the best tactic is to concede some ground in negotiations, so's not to start a trade war with the US (its best customer). Being a surplus country starting trade wars with the main party who is a deficit country does not make sense. This has nothing to do with the China-US arguement, just pure economics.

The RMB is 15-20% undervalued due to the amount fo USD reserves it holds. The USD is overvalued, in part because one of its largest trading partners, China holds a peg.

Expect 5% revaluing on the Yuan per year for next three years.
Expect USD to go down a little lower, before making long term base. If this does not happen there will be serious trade wars and the US may retailate not by stamping duties of chinese imports but destroying the value of the dollar.

All very interesting

Dollar/Yuan Peg Means China Gains on All Fronts

rubbish article, try harder.
better still look at my comments of the unfloding of China as I see it day-day,

Roubini Says 'Don't Forget About Me'

In terms of the small banks, they will be gobbled up by big banks so the FDIC does not get itself under water anymore. Then when things stabilise these super banks will be split up. No doubt they will be split up but the offshore holding companies will have interconnected ownership, so in effect they will seem like they are less risky to the system. But if the shit hits the fan, the cross holdings will create the same rush to the door as the last crisis we have seen.

Roubini Says 'Don't Forget About Me'

I like intellectuals, A Sexual, no emotions, no transference.
They judge on what they see, not who they are inside.

Roubini is very smart but internally morbid.
Guys like this always are perma-bears.


Whitney is a strong women, so wants to be right all the time.
Putting down her male colleagues in the industry motivates a lot of her calls.

The market will move to 10 700, then sell off back down to 10 000.
It will hold 10 000. If it does not more liquidity will be put into the system. There is enough liquidity in the system anyway, so it will hold 10 000. Dollar will make its low around 10 700 and they trade sideways. Gold will make its high when market is sitting up at 10 700. It will be interesting how this sells off.

Maybe we will get winter of storage as apposed to winter of discontent. Whatever way expect boring 2/3 months ahead.

Check-Up on China and the Baltic Dry

The question is, is the Baltic at new highs because shipping companies have cut capacity and routes. The shipping industry has colluded and it working together to manipulate freight transit rates. So to me the baltic index is just a manifestation of the reduced capacity when the west is restocking for christmas.

China's exports have been ok the last 2-3 months.
Not great, not as bad as last year.
The Shanghai market is awash with liquidity.
The Shanghai property market is awash with liquidity.

Hot money flows are quite high.
Savings are coming out the bank.

Expect things to slow down as we enter winter,

China Currency Issue: A Red Herring

Blah Blah Blah Blah....
Blah Blah Blah Blah...

The USA does not care about China's fx policy. If China was to allow its currency to strengthen, they would have to sell USD Debt. That would take the value of the USD down too quickly and make the USA funding ever harder at a time that ample liquidity is needed in this market.

The USA is taking its currency down against other currencies to improve its trade deficit. By China keeping the peg with the USD and the US taking its currency down against the Euro. What is happening is that Europe is taking the burden of the adjustment. The USA is happy to let China slowly revalue the Yuan, instead pressing for access to its financial sector and to allow the USA multinationals to get a piece of the pie. Think Boeing/GM.

The US has to make out that it is trying to get China to revalue, or Europe its main ally will get frustrated and annoyed. The US knows that the currency is not the big issue. But the main issue is protectionism on every leval, subsidising the manufacturing sector and various trade barriers. The US also knows that China is scared of devaluing its currency after what happend to Japan after the Plaza accord. The US knows China does not want this to happen to them and they fear being forced to, so will not press too hard even if they wanted swift re-balancing. Which they don't. To reblance trade, China just needs to stop blocking US products and give fair access. Simple as that..

Love you work Patrick,

U.S. and China: Lecturing Each Other on Trade

A rapid 'excessive' expansion of credit = instability in the banking system = financial crisis.

This is certainly the truth. The higher the wastage resulting from expansion of credit, the higher the chances of instability in the banking system from balance sheet issues. Which of course leads to financial crisis due to the connectedness of the system.

We have as yet no proven that the expansion of credit in China is excessive. Yes the numbers are huge, but so is China's saving. I would say as large as the expansion has been, in ratio terms against domestic savings. The numbers have really not been that big. This ratio is the true way to decipher how large expansion of credit has been.

Insteas of a financial crisis, the most likely outcome of this lending boom is stagnation as the chinese savings are eaten up from all the bad loans in the banking system. I get the sense that as long as savings stay high and china maintains its trade advantage. We will not get the bust everyone predicts.

Saying this China does face a number of important destabilising forces. One of which is its aging population, so it better keep its investment wastage under control. Of course investment in a developing economy with the 1.3 billion people is easier to keep under control than a developed nation that is in debt that wastes money day in day out on things they dont need.

China's Yuan, Not the U.S. Dollar, Is Too Cheap

good article, not sure about 40%. Maybe 15%.
Chin after all has printed some serious amount of yuan over the last few years.

Dollar vs. Yuan: Exchange Rates Aren't the Problem. Or the Solution

Tetrapod has good point. Japan produces lots of goods through its China subsidiaries so they will not be that bad off. But Europe will take a hit. Saying this Europe likes strong currency as it is good for the immense investments they have. The reason why Europe rates are going up is because the Chinese are also buying Euros.

All this being said, if the USA takes its currency a lot lower.
Europe will start kicking up a fuss and action protectionsim against China. This is the USA real plan, kill their currency - get worldwide support against China's mercantilist policies. In doing so the USA improves it trade deficit situation as europeans will buy their goods. And wins because China will carry on buying their debt allowing them to re-inflate the economy. The secret weapon here though is the USA is trying to overheat the chinese economy with low interest rates in the meantime. Sending huge hot money flows from its banking system. Their plan is to drive up asset prices, then pullout.
Hoping that the Chinese banking system will be hit as a result of real estate loans going bad.

Markte Access is key in China. But the USA is not going to get this in any large way. So for now the issue is on the currency.

Two More Myths About Business in China

Living standards have improved in almost every country in the world in the last 50-60 years. This is a consequence of the social, political, human, financial and innovation evolution. It is somewhat unfair to attribute the evolution solely on the Chinese government.

Shaun's main data set is in effect the lower/higher middle class and upper class in China. These people usually have favourable hukou and it is fair to say they have seen a huge increase in their living standard. The lower/under class in China has been left behind and it is fair to say there standard of living has only improved as a consequence of the evolution of the various aspects I described above. Which can not be atributed to government policy. These people were left behind and in effect used in order to develop China into the powerhouse it is today. Of course this is a normal consequence of development. Every country has gone through this process. The bottom of the hierarchy always gets a raw deal. This is the reason for many of the 'revolutions and peasant uprisings in history of the world as it has developed.

Real progess is being made in trying to improve living standards of the working/lower classes now in China. The central government is fully committed to this, but still is keeping wages down to avoid giving the lower class too much financial freedom. From a dvelopment perspective you need lots of cheap labour to develop the country. Progress is being made, it is too slow.

There is a two-tier system.
Things are great for some and terrible for others and te inequality divide in china is great.

However in summary Hu and Wen are making progress. In terms of Shaun assertion there is great opporutnity from selling goods to the Chinese, he is spot on. Getting market access however is harder.

Make no mistake the US government knows the many faces of China. Those who believe they are naive and ignorant are wrong. However their challenge to balance growth and exchange of benefits is very difficult especially as the stakes are so high.

China Housing Market: It's 2005 All Over Again

No housing bubble, cost is at fair value.

The hot money flows that will come into China over the next 3 months will take propertyt up another 10-15%. Anymore than that then we can say property is above fair value. Not a bubble..

Certainly not a bubble, certainly not like USA real estate. In the USA no one would even dream of putting down large downpayment. Here in China downpayment average is around 40-50%. Property would have to drop in excess of 50% for people to be in negative equity and start foreclosure avalanche. Also it is now clear China is the second richest, second most powerful country in the world. Fundamentally prices are fully illustrative of this reality.

I wish people would stop shouting bubble.

The Global Oil Scam: 50 Times Bigger than Madoff

Amazing Article. Maybe most informative piece I have ever read on oil. China is the main country getting shafted though in this manipulation scam. Is it any wonder they do not want their SOE to honour derivatives contracts.

Going to war to secure oil is certainly worthwhile when other government arms are manipulating the price of what you are fighting for.

It seems however Obama is looking to take on these cheating bankers/traders. He is also going to take on the private health care companies making money out of other people's misery. Breaking up large banks. Could we be actually seeing government taking back power from the corporate sector. If Obama pulls this off, he will go down as the best USA president in modern times.

I salute you Obama...