Category Archives: Economy

What China Wants

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The Financial Times points out the quirks in the Chinese market that have Western companies racking their brains to stay on top of sales:

“The big spender in China, in years past and even more so today, is the state: private consumption as a percentage of gross domestic product has fallen from 60 per cent in 1968 to 36 per cent last year and could be as low as one-fifth in 2009 as the government ramps up capital investment.

In fact, the Chinese, who already have a world-beating savings rate of nearly 40 per cent of their income, tend to become more frugal when times are tough. As bank deposit rates decline, most of us spend more. The Chinese tend to stash away even greater sums to make up for the lost interest. The reason for this conservatism is the lack of a social safety net in China – citizens have to provide for their own medical care, old age and possible unemployment.

This makes them “penny pinching, ruthless, suspicious shoppers”, says Tom Doctoroff, north Asia director of advertising agency JWT and a writer on Chinese consumer trends. In a recession this behaviour only grows worse. “The downturn has made people keener on finding the cheapest deal,” says Yuval Atsmon, an associate principal in McKinsey’s Shanghai office. Even when they can easily afford it, buying a PC typically involves six visits to a store, and more often than not, customers will wait six months before making their decision after consulting blogs, online comparison sites and – the most important source of information in China – friends and family. Sales of copycat mobile phones, with all the functions of top models but a lower price, have soared from 17 million units in 2006 to 62 million units last year.

Brand consciousness is high, at least in the big cities, but brand loyalty is much lower than in the west. A price cut or good in-store promotion can often sway shoppers. And for cultural reasons, appealing to an individual’s taste or personal comfort typically doesn’t work, Doctoroff points out. A purchase either has to publicly signal status or wealth, like a flashy car does. Or provide a practical benefit: the latest craze in China is chocolate with added calcium, eaten not for pleasure but for the health benefits. The growing appeal of diamonds to women is not based on romance, but as a financial signal of a man’s commitment. Trust is another key issue in a country where so many consumer products are faked. Chinese mothers, for example, will pay 30 per cent more for safe baby milk – and this should favour foreign brands.

But foreign retailers and manufacturers have to cope with vast regional differences in demographics, language and culture that make it hard to plan a single marketing strategy – indeed treating China like a single country is usually a mistake. Natives of Zhejiang on the east coast like “toilet roll as rough as sandpaper”, the former head of Wal-Mart China liked to observe, a penchant thankfully absent elsewhere. Atsmon points out that cities even an hour apart can be entirely different: in southern Shenzhen, more than four-fifths of the population consists of migrant workers, mostly under the age of 35, who speak Mandarin and drink in bars. In nearby Guangzhou, migrants number just over a quarter, more people are older, enjoy watching Cantonese TV and go out to restaurants to drink with family members. Adequately addressing such niches requires an army of local suppliers, costly infrastructure and several layers of wholesalers and intermediaries. Even then, success may remain as elusive as it always has been: “No matter what you may be selling, your business in China should be enormous, if the Chinese who should buy your goods would only do so,” lamented Carl Crow, an advertising executive in Shanghai and author of the original book on how to sell to the Chinese … more than 70 years ago.”

India Changing…

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Jayant Bhandari in Liberty Unbound:

“Now, as I travel through India’s smaller towns and villages, I gather many impressions, both of change and of continuity.

I stay in rooms that cost me $2 a day, and purchase all-you-can-eat food for 50 cents. I pay my driver the princely sum of $7 a day. To Westerners, these prices will appear astonishingly low, but inflation of food prices in India is close to 20%. Food is very expensive for regular folks, and speculators are being blamed. I am constantly amazed that there is never any mention of the fact that the Indian government still runs one of the most efficient printing presses in the world — printing money, of course. The only thing that limits inflation is the high rate of real economic growth. Yet the Indian government is getting extremely addicted to increasing expenditures. The government’s fiscal deficit is about 12% of GDP. To me this is like addiction to heroin. What will happen if the growth rate falters?

In an isolated place, a woman sells me a 15-kilogram bag of fruit for a total of 60 cents — fruit worth about $15 in Bhopal. Her companions think she’s won a lottery. These wretched women chase me and beg me to buy some from them. I feel sorry for the little girl who had tears in her eyes. Yet I am repelled by the fact that so many Indians easily grovel and beg. The worst is when well-off people do this. A visit to a government office in India is essential if you want to understand the degradation that the Indian public accepts even today.

I meet the top management of a company constructing a major highway. The highway was deemed uneconomical, so the government and the company agreed that they would use eminent domain to confiscate a lot more land than was necessary from the farmers, at 5% of the market value. The extra land would be converted into condos or commercial space. The poor people would subsidize development. Why should they subsidize the development of the country? This is socialism in practice, although the farmers are branded communists when they rebel. Meanwhile people in the West believe there is something romantic about poverty — a view that is not only hypocritical but pathetically wrong..…”

David Tice On King World News: Trouble Ahead….

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David Tice on Eric King’s King World News, December 23, 2009

  • This is not another inventory recession; this is unprecedented
  • There’s trouble all over the globe – Europe, China, Japan..
  • Hunker down, cut back expenditures, get out of stocks, own gold
  • Look for deflation followed by competitive currency devaluation, then inflation.

Adrian Ash: Here Comes Stagflation

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The whole inflation-deflation debate has always struck me as misbegotten.  People use the terms to mean things so varied that it’s pointless to argue. But such as it is, I’m  a firm believer in the deflationary thesis on the macro level… influenced in this by the economist Antal Fekete , and his theory of how capital is destroyed in a fiat money regime.

Nonetheless, I do see consumer prices rising.

In other words, asset prices fall, industry contracts, and unemployment levels stay high, while the stuff on the shelves costs more, insurance and tuition  rates climb, and living in general becomes more expensive. Continue reading →

The Demonic Style: Valentine On Military Historians, Avatars, and the CIA

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Insight into why the revisionist media never ‘gets’ it:

“The extent to which this practice existed was revealed in 1975, when William Colby informed a congressional committee that more than 500 CIA officers were operating under cover as corporate executives and that 40 CIA officers were posing as journalists.

“When it comes to the CIA and the press, one hand washes the other. In order to have access to informed officials, reporters frequently suppress or distort stories. In return, officials leak stories to reporters to whom they owe favors. Continue reading →

Recession Brings Fall In Crime Rates

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The recession is dealing body blows to the rationale of many great society programs, that poverty leads to crime. First, there was the unmasking of a large part of the most affluent part of the country, its financial elites, as little better than a criminal class. Now, comes news that crime rates are down as the recession continues. Continue reading →

Shadow Stats’ Williams Says Hunker Down For Depression

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John Williams of Shadow Stats says the gig is up:

“Atlhough the hyperinflation is going to be limited largely to the U.S., the economic downturn will affect things globally. I can’t tell you how things will go with a hyperinflationary Great Depression, which is where I see things going.

It’s the type of thing that will tend to lead to significant political change. People tend to vote their pocketbooks. You could have the rise of a third party. You could even have rioting in the streets. I’m not formally predicting that — anyone can run these different scenarios. For the individual, what you need to do, from an investment standpoint, look to preserve your wealth and assets. Don’t worry about the day-to-day fluctuations in the markets. What I’m talking about here is over the long haul…

[Gold is] going to be highly volatile, as will the dollar, over the near term, but longer term, physical gold I would look at as a primary hedge for preserving the purchasing power of your wealth and assets. Maybe some physical silver. Get some assets outside the U.S. dollar. I might even look to move some assets physically outside the United States. The key here is to look at a longer range survival package, battening down the hatches, and preserving your wealth and assets during a very difficult time. Once you’re through that, you’ll have some extraordinary investment opportunities, and I can’t tell you what it’s going to be like on the other side of this crisis.”

My Comment

In response to a reader, I added my comment (Dec 28):

This is the way I see it.

1. There is asset price deflation going on (house prices falling), since the prices reflected unrealistic future projections of housing growth driven by derivatives built on the mortgages.
Now that those projections have been called into question, the derivatives have been repriced as junk, and the underlying securities, the homes, have to return to a more appropriate price leve.

2. This means that all artifical economic activity associated with the housing bubble also has to decline. So there´s economic contraction. That has taken down the commodity markets with it (except for gold, which is up as a hedge against the dollar and as a speculative play right now)

3. I don´t pay too much attention to individual figures coming out on the economy that seem to indicate an improvement in things, because

a. Many of the numbers are inaccurate or deliberately misleading.
b. Economics is not a mathematical science.  It´s an art. Static numbers cannot tell you about the social mood, political factors and gestalt that  drive the market.

Now, market prices are bit more reflective of those things because they´re dynamic, so the prices of commodities and stocks can be  good indicators. But there again, which prices -the price of gold, the price of money in the US, the price of commercial borrowing?

c. There´s also market manipulation..very severe manipulation. So again, the market indicators have relevance but its upto individual analysis how to tease out the relationships.

4. That said, and despite the fact that we have a credit contraction going on (a decline in the monetary base) that doesn´t mean that at some point the money pumped into the banks won´t find ways of entering the economy….if it hasn´t already, in some disguised fashion. (I realize the word ´money´ is being used in different ways here, as it is through out the debate, which is the reason for so much confusion..but that´s a long story..)

5. It´s highly probable that as the slowdown shows its true face, governments everywhere are going to be simultaneously devaluing..leading to local inflation.

6. Searching for hard assets, funds are again going to drive prices of certain essentials upward..leading eventually to commodity prices soaring even while there is a general economic contraction

Thus you could have simultaneously a high level of inflation – perhaps not hyperinflation, I would guess around 15%’20% – as well as a depression

Social Media Machinations Of the Financial Press

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A piece of Orwellian obfuscation by one Tom Sykes at Daily Kos *(see note at the bottom of this post) goes into the file, rip-roaring propaganda:

“I want to be clear on something up front. I think hedge-funds are a menace and should be outlawed. I think Goldman Sachs is a criminal conspiracy and its whole leadership should be indicted.

There are plenty of commentators, like Paul Krugman in the New York Times today and Matt Taibbi in his article in Rolling Stone, that have done great reporting on Goldman and on hedge funds.

But what we’re seeing is how a really odious character named Patrick Byrne is trying to hijack this issue…”

My Comment:

Byrne hijacked Taibbi? The liberals busted Goldman Sachs and naked short-selling and the hedge funds?

Aren’t Goldman Sachs and the hedge-funds the money men who funded the whole left-establishment..and wasn’t it people on the right libertarian side who busted them, and in fact called the whole financial crisis?

The libs were on the case only in 2008 when everyone was on the case and you’d have to have been blind not to notice.

This kind of revisionism makes me question the impetus behind the Rip Van Winkle awakening  of the MSM on the financial crisis.

Either it shows that the MSM can’t see what’s going on in front of its collective nose, which argues that its working hypotheses are wrong (the kinder interpretation), or it shows rank dishonesty (the truer interpretation, likely).

I’d go with the first interpretation, only the hatchet job the press keeps doing on anyone from the other side of the political spectrum suggests that the second interpretation is the right one.

As I’ve repeated ad nauseum, Taibbi seems to have lifted my Goldman Sachs piece of 2006 (Money Week) as well as a bunch of other articles written in 2007-2008 (see ABOUT) . You can read it on the net and then go back and see what Taibbi wrote, only about three years after I did. (He probably pinched stuff from at least one other person as well). You will also see that I wrote more than half-a-dozen articles on Goldman after that in 2006 and 2007 (check this site). In 2008, everyone began writing about Goldman. I figure someone at Rolling Stone got worried that the population was beginning to wake up to which side really had the goods, and decided to co-opt the issue before their intellectual ineptness was too evident.

Otherwise, I’m hard pressed to explain why they don’t think they need to source and attribute correctly. They can’t all be such intellectual charlatans? Right?

As for naked short selling, Byrne has been waging that campaign since 2005.…and some others on the right, even before him. Even people who don’t think there’s an NSS hedge-fund-media conspiracy involved have long ago conceded that NSS is a problem (see this Motley Fool piece from 2005), and that it’s difficult to figure out what’s really going on, because the DTC/SEC, for example, won’t/can’t release the figures needed to assess the situation.

(Now, why would anyone think conspiracy when there’s stone-walling going on…)

Matt Taibbi basically borrowed Byrne’s argument. And having taken the argument, the establishment is now trying to discredit the person who made it first (see Ritholtz here and here, even before the Facebook brouhaha).

It’s not irrelevant that in coming to his conclusions, Ritholtz cites only the very same journalists whose credibility is shot by the evidence of their collusion with hedge-funds. That is certainly a bizarre way to report on a topic.

Mind you, this should not be taken to be an endorsement on my part of Byrne’s business practices or accounting, about which I know only what I have read. And that of course has mostly been written by his critics and critics of the NSS thesis, like Dow Jones reporter, Carol Remond.

But Remond, despite her reputation as a respected reporter on penny-stock scams, is seriously compromised in her reporting on this issue because of alleged collusion with hedge funds.

I say alleged, to be on the safe side, but to my eyes the evidence is convincing.

On the other hand, Overstock has repeated accounting problems that its foes argue are the real reason for its NSS campaign.

How serious these problems are is hard to say.

Of the two accountants who routinely denounce Byrne’s business practices in multiple postings that take up a remarkably (and suggestively) disproportionate space on their blogs, one, Sam Antar, has been convicted of one of the most extensive cases of embezzlement in recent history. Antar also claims the mantle of reformed felon without any evidence that restitution of the embezzled funds took place. He escaped prosecution only by turning in his own family. This is not a confidence-builder. Actually, there’s some evidence of further wrong-doing involving one Barry Minkow that’s also posted on the Deep Capture blog. Antar and Mankiw are practicing greenmail, according to this piece.

(Its author uses the term loosely. Greenmail, in recent US financial history, is what Michael Milken is infamous for – a type of corporate raid. And Milken is one of the central villains in the Deep Capture story of the corruption of Wall Street. Since I researched this period for a book I was planning to write on Goldman Sachs, I’m conversant enough with the subject to say with some confidence that Byrne is on the right track on this).

The other accountant who criticizes Byrne, Tracy Coenan, seems to be another ally of  Antar and equally over- concerned with the accounting problems of Overstock, to the neglect of other companies.

Yet these are the only two accounting experts I see cited by Weiss.

Could there be other things wrong with Overstock?

Perhaps.

I have no way of knowing. But what I do know doesn’t so far make me think the problems are related in any way to the thesis of Deep Capture. The accounting errors don’t seem especially egregious, compared to the rest of what is going on in the market that the reform movement that Byrne spearheads is trying to tackle.

So is Deep Capture’s work discredited because of Byrne’s alleged and real problems?

No.

Overstock could very well be mismanaged and Byrne could be guilty of accounting shenanigans. That has nothing whatsoever to do with the extensive, indeed, mind-boggling, ties between supposedly neutral financial reporters and the hedge-funds that Deep Capture report on. The evidence the site has collected is shocking and undercuts any defense of the neutrality of the reporters in question (Bethany McLean, Remond, Weiss, Herb Greenberg, Roddy Boyd, etc).

To return to the media manipulation story.

After Taibbi put the two stories on Rolling Stone, Goldman and Penson came out and shot them down.

Taibbi, strangely, for a supposed target of Goldman and for all his righteous indignation over NSS, vanishes on the latter subject (NSS) and retracts parts of the former.

So what happens?

The entire Goldman argument gets reduced to “Goldman corrupted the regulators,” which works very well if you want more government and more regulators (and we are not fundamentalists on either subject). The good part of that from the point of view of the MSM is that that lets them displace the outrage on one or two figures (Rubin, for example), while using GS as a whipping-boy to funnel off popular rage from any effective overhaul/criminal prosecution, as well as to deflect it from the evidence of conspiratorial criminal activity.

(Yes, there are conspiracies, Virginia, and often the ones protesting loudly that they don’t exist are part of them…unwittingly or not).

Take this piece at Business Insider by Ritholtz, which sets up the boundaries of establishment discourse, with Taibbi and Gasparino at either end. What it does is to  come down roughly “midway”  between the two in a way  that conveniently does nothing to change the centrist liberal establishment discourse.

(At least, that’s my take).

Now, Taibbi comes from a well-established media background, with a father who was an NBC TV man.

It’s hard to believe he doesn’t know the ethics and etiquette of sourcing. In fact, it’s downright impossible.

We’d have to conclude that

1. He was tasked with co-opting the stories for political or national security reasons.

2. Or lacks journalistic integrity, a deficiency fairly rampant these days….

3. Or wants to protect the left-liberal establishment on the issue….

4. Or some combination of the above.

Note:

*Tom Sykes is apparently a sock-puppet created by Gary Weiss, the former Forbes and Business Week reporter, at least, according to the considerable evidence amassed at Deep Capture.

Note: I have sent several mob/corruption-related articles to the Deep Capture team and consider myself a supporter of their research, which I’ve tried to link and forward to others, as well as to more generally publicize. I don’t think that prevents me from assessing the merits of their claims objectively. I don’t, for example, condone any social engineering attacks on social media sites like facebook, no matter what the legal status of such attacks is. Frankly, the work Deep Capture is doing on market/media corruption is too important for its members to get into such unworthy activities. Nor do I think bringing in personalities, family members, or even private networks of journalists is particularly important or even necessary. The point is not whether a journalist talks to or is friendly with another journalist….or even hedge-fund. The point is whether their work is significantly biased by the friendship and whether they disclose the friendship and attempt to correct for it. I appreciate a number of left and liberal writers, even when I disagree with them, because I find them intellectually honest and reasonably objective (complete objectivity being impossible as well as unnecessary). That’s not a very high standard to demand now, is it?

Are We All Keynesians Now?

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Peter Robinson in Forbes, writing about Professor Samuelson´s death, on why we aren´t all Keynesians now:

“Question: “Everyone,” you claim, “understands … that there can be no solution without government.” Are you aware that Harvard economist Robert Barro called the Obama stimulus package “garbage?” “This is probably the worst bill,” Barro insisted, “since the 1930s.”

Had you noticed that Stanford economist John Taylor has warned against responding to the crisis with a government intervention? “[P]olicy makers,” Taylor wrote recently, “should rethink the idea that frequent and large government actions and interventions are the only answer to our current economic problems.”

Are you aware that nearly 300 economists signed a petition opposing a federal stimulus? “Notwithstanding reports that all economists are now Keynesians,” the petition declares, “we do not believe that more government spending is a way to improve economic performance.”

And have you happened to glance at any recent polls? According to the Rasmussen organization, more than half of Americans believe the Obama stimulus bill will either hurt the economy or have no impact.

If dozens of economists and more than half the American people are against you, then who is this “everyone” of whom you spoke?”

Rick Ackerman On the Deflationary Argument

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From Rick Ackerman:

“Our grasp of deflation’s logic began with the 1976 book, The Coming Deflation, by the late C.V. Myers, and continued with Davidson and Rees-Mogg’s The Great Reckoning. Although Myers’ work was obviously premature, the concepts it emphasized are timeless, particularly this one: “Ultimately, every penny of very debt must be paid – if not by the borrower, than by the lender.”  This is the crux of the inflation vs. deflation debate, and because of the way Myers framed it, we’ve never had any doubt that the U.S. would eventually experience a catastrophic deflation. We were early in thinking the financial system would topple as a result of the allegedly “mild” recession of 1990-91 and its S&L crisis. In retrospect, it’s clear that we lacked the imagination to see that the huge amounts of Third World debt that threatened the global economy at the time were relative chump change compared to the galactic sums that Bush, Obama and the Federal Reserve have put into play in the last three years in hopes of saving the system.”

My Comment

I posted this to support my reiterated position that the recession  cannot possibly be corrected as simply as advocates of the stimulus programs like to argue.  It´s been in the making for more than a quarter of a century. Can a few months change everything so fast? I could be mistaken, but I don´t think so,…

I also posted the Ackerman piece to counter the establishment media spin that Nouriel Roubini was so much “ahead” of others in predicting the recession.

I call Roubini an establishment figure because of several things, including the fact that he does business with Larry Summers.  Here is Roubini warning about housing in 2006...

He himself said the earliest he predicted the housing crash was in July and August 2006.

But by then, even a layman, like yours truly had already done that, and done it earlier – July 2005

And I was, at least in part, drawing on my reading of Mises. org, Lew Rockwell, and The Daily Reckoning, when I wrote the piece…which is where they spotted me on the web, and offered me a gig.

(As I said, I´m always walking into synchronicities in my life..)

Compare that with what other experts were saying in 2005, which is,  there´s no housing bubble. That´s Ritholtz, by the way, who writes the excellent blog, The Big Picture (At least, Ritholtz also did say that housing was extended).

But then, in that same piece,  Ritholtz  also predicted that 2008 would be a good time to reenter the housing market. Oops. [Dec 12. On second thoughts,  maybe oops isn´t really warranted. Housing may not have bottomed out everywhere, but I´ll bet you could have picked up good bargains in a few places in 2008]

That shows that you can have very good number-crunching skills, but then miss some of the…..dare I say it?…big picture.…because the big picture has nothing to do with number-crunching but with perspective

And that takes a knowledge of history…. and not simply economic history either. It takes a broader knowledge of the world than professional money-managers usually have.

Meanwhile, compared to Austro-libertarians (see those cited above in Ackerman´s post), Roubini was some twenty-five years late in his analysis.

Yet the media studiously ignores Austrian theory and Austrian theorists (Mark Thornton, for example, called the housing bubble exactly on time and called gold $1200 back in 2005) and stamps approval on people who were either late or wrong…and turns to them for solutions.

Why is all that important? Because it shows the intellectual dishonesty that is at the heart of the corruption of the system.  Fraud and force go together, and for political and financial fraud to succeed, they need intellectual and academic fraud to cover their sins… and prep the soil.

Deep lack of trust of anyone who adheres to a rival political theory (or to a rival political party)…. and the arrogance of power…lead the establishment media to rewrite history…. and this intellectual dishonesty is the rag behind which the emperor (the state) hides his moral nudity.