Recently tied up trying to find some venture deals. I’ve been reading a lot of proposals, the world of VC seems a complete breakdown from reality for me, no past, no now, just the future, for those want to see where their money is, this is not fun, at all. I seriously believe this is the main reason, we Chinese like to buy houses, not only we can see it, we can actually touch it, feel it and sleep in it. And if you want to be seen rich, showing off to others your bank account balance is too premature, just point out that, hey, I just got a villa in Hongqiao, you want to take a look? And that’s what Allen said to me this Tuesday night.
The Exit strategy
Heard often of the exit strategies the Fed might be taken, as though the world has already returned to prosperity, so it’s almost time to rein inflation now. Exit strategy is supposedly to make the liquidity disappear and the return of the stronger dollar. Then we got UK BOE suddenly dropped £50 billion into the system, brings the total to £175 billion, the decision to print more money is not a sign of confidence but of panic that implies that the Bank of England is concluding that the recession is far deeper than it had imagined even a few weeks ago. The key market reaction was as expected on such an announcement with Sterling plunging and UK bonds rallying as the bulk of the £50 billion will be used to buy government bonds to help finance the huge budget deficit that targets £200 billion for 2009, far beyond anything as a % of GDP experienced this side of WW2.
UK is preview for the US, step by step, I borrow some words from a really bad mafia movie, “You think this is over? You think you can just walk away with all that money? Think twice.”
Cash for Clunkers
Both China and US have been engaged in cash-for-clunkers deals, US auto sales last month hit an annual rate of 11mln cars, far cry from 20 mln level years ago, with the incentive, this is nothing to celebrate, yesterday the US July retail sales down 0.1%, consensus was 0.7% up, this is a recovery with no new jobs, no shopping around cash, I would have to say, the best is probably behind us. Best, I mean touching reality, the gap between what you expect and what will happen, now the gap in turning negative.
I was having some difficulties understanding how China auto sales surged so much recently months, over a million/month. How come people suddenly have the appetite for cars? Then I saw what happened to the Americans, this is no mystery now, human beings are naturally bargain hunters, I recommend you guys to read the Great Crash, people don't change, for ever. Soon the Cash for Clunkers will hit downhill, in fact the peak has already past. I got some numbers saying that China will grant 7.5bln old for new kind of stimulus, aiming to boost 125 bln retail, about 16x leverage, now we got the cash, just find ways for you to spend them all.
Borrow a piece from ML China chief, really worth 5 minutes to take a look. His thinking is always more insightful than his predictions, the property market is holding the governments at hostage, since 1998 when China first pumped the real estate sector to feel the sweetness of resumed growth and shrugged off the Asian crisis, the clocked started ticking, the Fed began to flood the credit in 2000, we did this from 2005, so there’s still time to go, but this is no different.