Planting $ for tomorrow

How Long Will the Chinese Let the U.S. Bluff?

Here is an interesting article about the dollar and China by noble Prize winning economist Paul Krugman:

www.nytimes.com/2009/0...

How Long Will the Chinese Let the U.S. Bluff?

I think you are right that they are worried about the dollar devaluing. The Chinese have been pegging their own currency to the dollar for a long time. They want to have the Yaun cheep so that they can export. Pegging a currency to another currency can be painful if the currency you are pegged to moves shaply in one or the other direction. To be forced off the dollar peg by wild swings in our dollar would be destabalizing for China. They would be better to slowly ween themselves off the dollar peg. It is hard to imagine that they will be able to sustain a dollar peg indefinately especially now that the U.S. government is no longer worried about having a strong dollar. After all the U.S. likes to export too, and many US economists are now pushing for a less expensive dollar. If China wants their currency lower than the dollar they may have to see how low they can go.

Really I think Russia and China calling for a world currency is just to get the U.S. to stop talking tough about China letting their currency float freely instead of pegging themselves to the dollar. Note, that we backed off on that demand since they started talking about the world reserve currency again. I don't think tey held any beliefs that the world reserve currency was anywhere in the near future.


On Apr 03 07:29 PM Moresby wrote:

> My opinion is that the Chinese government will not cut its nose to
> spike it face; they are holding an awful amount of US bonds and they
> do not want to see these devalue if they can help it.
> I think there are 2 opposing voices there, the nationalist one that
> wants to remind the world that they are one of the largest creditor
> for the US, this also pimp up nationalist pride; there is the opposite
> voice that are concern that all these trillion dollar deficit will
> devalue the dollar - their precious investment.
> Does the Chinese government nurse the ambition of being a true world
> leader with a currency that is the world currency? You bet.
> Will this happens, depends, a lot has to change in China before this
> will happen, I am not holding my breaths.

Chaos Brings Opportunity in REITs

There will be some great buys in the REIT sector, but I think there is going to be a big drop before that. It is highly likely that several REITs will continue to be unable to refinance loans causing defaults and bancruptcy. This will create panic in the REIT investment landscape. Mr. Market will then sell anything related to commercial real estate. The strong companies will buy up the pieces at distressed prices, and come out stronger. I am waiting untill the panic moves from financials and residential RE to CRE then I will step in and buy.

Commercial real estate is late in the economic cycle. It will not lead us out of the economy, but rather it will recover after the general economy starts its recovery.

Las Vegas Sands: Massive Offering, But Is It Enough?

This is now a binary decission. This stock either goes to zero or $50. I would say $100 but they just doubled the outstanding shares. This company has strong cash flow. It does not look like it because so much has been eaten up in capital expenditures, but now that they are slowing the pace they "should" have enough free cash flow to pay the bills. Casinos create a lot of cash.

Adelson will want to keep plowing ahead, but it could cost him his fortune. Strategically the faster the casinos get open the better, but if they can't get project financing then they need to use the now decreased cash from the casinos just to pay the debts. They still have letters of intent from world class hotel brands, the Macau government wants to see a Cotai strip, and they have much of the construction finished. As long as they survive the earnings and EBITDAR will shoot through the roof.

In the beginning of 2007 they had two casino resorts. In the beginning of 2008 they had four casino resorts. Venetian Macao was much more substantiall then the first two. In the beginning of 2009 they will have five casinos and the ferry service in place. By 2010 they should have the most magnificent casino yet in Singapore. 2011 they add Bethworks Pensylvania. 2011 on they add another 10 to 12 hotel brands on eight plots of land in Macao.

So they are going from two to say 15 of equivalent size to the first two. Adelson wanted to get it done by the end of 2010. Saying they survive then they should still get it done by the end of 2013. That would be a 39.9% compound annual growth rate from 2007 through 2013. If instead they get it done by the end of 2012 then it a 49.6% compound annual growth rate. Then again tey could spend all their cash today, default on the the debts, and then go banckrupt.

Like the last person said this is high risk high return. Adelson would be the only reason they spend so much that they default, and he has now bet practically all of his life fortune on this play. I am going to bet with the house.

Ultimate Economic Showdown: China vs. the U.S.

China is one of the main growth stories of our time. So is Technology. In the late 90s everyone was excited about technology as they have been about the growth of the BRIC countries, and especially China. Technology is still booming, but the market and irrational exuberrance has quieted. China's economy will continue to grow even now that its stock is down to attractive valuations.

Like the Wall Street Journal article said China wants a seat at the regulatory table. There economy certainly buys them a seat at the table. Will they be the dominant economic force. Maybe in your lifetime James, but not in the near future.

Listed here is the GDP by country as found in the World Bank website.

Gross domestic product 2007
(millions of
Ranking Economy US dollars)

1 United States 13,811,200
2 Japan 4,376,705
3 Germany 3,297,233
4 China 3,280,053
5 United Kingdom 2,727,806
6 France 2,562,288
7 Italy 2,107,481
8 Spain 1,429,226
9 Canada 1,326,376
10 Brazil 1,314,170
11 Russian Federation 1,291,011
12 India 1,170,968


In 2006 I was amazed that China had moved to fourth place by beating out Germany. This year the U.K. and Germany switched places. China only needs to double a little more than twice to catch up with the U.S. Using the rule of 72, if China grows its GDP by 10% per year then they will double approximately every 7.2 years. They could double from $3.28 Trillion to $6.56T by 2014, and on to $13.12T by half way through 2021. This means they would almost catch up with the U.S. if the U.S. completely stoped growing for the next 14.4 years. More likely the U.S. grows at more like 2.5% a year. Of course 2.5% of the U.S. GDP is $345B and 10% of China's GDP is $328B, so it would take longer than 14 years at these growth rates. Most prominent economists do think China will pass the U.S. this century. The very aggresive estimates are around 20 years. To say it will happen when we recover from the current crisis is extremly aggresive. Of course a lot can change in the next 50 years or so.

Information technology is ushering in a new world order, but the excited investors 10 years ago were early. What they foretold is still taking its time to play out. So to with China.