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Free money!
Dec. 2nd, 2009 12:07 pmOne of the things which has mildly puzzled me over the past nine months has been the strength of equity markets and the appearance of lots of money, despite unemployment rising and what looks like a fairly serious contraction in GDP. I didn't let it worry me unduly -- it made a couple of investment decisions (oh, ok, blind punts) on IG Index go wrong, but these things happen. I just attributed it to some kind of larger multiplier effect than I had anticipated, possibly through higher confidence levels than reality dictated.
Even this morning the FT was talking of an "overheated debt market", with the re-emergence of certain debt offerings that were symbols of the height of the 2006 debt madness. One of them, Booz Allen's payment of a $350m dividend to Carlyle that will be paid out of a corporate debt raising rather than something as irritating as profits, struck me as particularly scandalous, with Carlyle's excuse that after the debt issue BAH's gearing would still be lower than when Carlyle bought it as, well, no excuse at all.
However, the scales rather fell from my eyes when I saw this graph yesterday, courtesy of Swiss Re's chief economist in Asia.
This rather innocuous offering conceals the fact that China effectively pumped CNY3trn, or $450bn to you and me, into the Chinese economy to stop all of those newly urbanized workers from being laid off and potentially causing a few riots if the government tried to send them back to rural poverty. If you want to see a visual image of the size of a problem that might be, look at the crowds held up at China's big-city railway stations in January last year because snowfalls shut down the rail lines at the time of a traditional once-a-year return-back-home holiday for these workers, many of whom have wives and children thousands of miles away, all of whom depend on factory wages for survival at anything other than poverty level.
Anyhoo, that $450bn didn't sit still. In effect it was transferred from the US gilt market to the global economy, particularly the developed world that imports a lot of stuff from China. THAT in turn makes the QE of the Bank of England look rather anaemic by comparison (although not irrelevant). That $450bn is probably a major factor in asset price support in the developed world.
At the same time, China cut its interest rate by two points to around 3.5%. The result? Building in China hasn't slowed down; it has accelerated. And we in the UK should be looking equally closely at Chinese interest rates and this level of bank lending as we are at the UK QE level, the UK interest rate level, and what is going on in the US.
Actually, we should be paying more attention, because the actions in China will, I think, be a good lead indicator to what will be happening in the US about 12 months later. Just look at when the Chinese got moving with its monetary stimuli -- a good nine months before the equity lows in the UK and the US.
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The current fuss over plagiarism on the web and the need for "proper" newspapers to charge for content ignores one interesting point -- the FT and the WSJ, both of which charge for content, put a lot of unoriginal material on their web site. Other newspapers are even more guilty. Why should I pay Rupert Murdoch to access content that's been compiled by Associated Press, Reuters and Dow Jones? Ahh, the WSJ might say, "but it's a convenient way to get all of it in one place."
"Like Google, or any other news aggregator, you mean"?
"Ahh."
The "pay for content" guys actually want it both ways. They want to charge the reader, but they want to be aggregators on the quiet. I'll happily subscribe to publications that offer me original content or source stuff that I would otherwise miss (South China Morning Post is an excellent example), but I'm buggered if I'm going to subscribe to an online newspaper that clutters up my browser with three or four pieces of Adobe Flash shit, surrounding a story that they've got from a stringer on Reuters.
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Even this morning the FT was talking of an "overheated debt market", with the re-emergence of certain debt offerings that were symbols of the height of the 2006 debt madness. One of them, Booz Allen's payment of a $350m dividend to Carlyle that will be paid out of a corporate debt raising rather than something as irritating as profits, struck me as particularly scandalous, with Carlyle's excuse that after the debt issue BAH's gearing would still be lower than when Carlyle bought it as, well, no excuse at all.
However, the scales rather fell from my eyes when I saw this graph yesterday, courtesy of Swiss Re's chief economist in Asia.
This rather innocuous offering conceals the fact that China effectively pumped CNY3trn, or $450bn to you and me, into the Chinese economy to stop all of those newly urbanized workers from being laid off and potentially causing a few riots if the government tried to send them back to rural poverty. If you want to see a visual image of the size of a problem that might be, look at the crowds held up at China's big-city railway stations in January last year because snowfalls shut down the rail lines at the time of a traditional once-a-year return-back-home holiday for these workers, many of whom have wives and children thousands of miles away, all of whom depend on factory wages for survival at anything other than poverty level.
Anyhoo, that $450bn didn't sit still. In effect it was transferred from the US gilt market to the global economy, particularly the developed world that imports a lot of stuff from China. THAT in turn makes the QE of the Bank of England look rather anaemic by comparison (although not irrelevant). That $450bn is probably a major factor in asset price support in the developed world.
At the same time, China cut its interest rate by two points to around 3.5%. The result? Building in China hasn't slowed down; it has accelerated. And we in the UK should be looking equally closely at Chinese interest rates and this level of bank lending as we are at the UK QE level, the UK interest rate level, and what is going on in the US.
Actually, we should be paying more attention, because the actions in China will, I think, be a good lead indicator to what will be happening in the US about 12 months later. Just look at when the Chinese got moving with its monetary stimuli -- a good nine months before the equity lows in the UK and the US.
++++++++++++++++
The current fuss over plagiarism on the web and the need for "proper" newspapers to charge for content ignores one interesting point -- the FT and the WSJ, both of which charge for content, put a lot of unoriginal material on their web site. Other newspapers are even more guilty. Why should I pay Rupert Murdoch to access content that's been compiled by Associated Press, Reuters and Dow Jones? Ahh, the WSJ might say, "but it's a convenient way to get all of it in one place."
"Like Google, or any other news aggregator, you mean"?
"Ahh."
The "pay for content" guys actually want it both ways. They want to charge the reader, but they want to be aggregators on the quiet. I'll happily subscribe to publications that offer me original content or source stuff that I would otherwise miss (South China Morning Post is an excellent example), but I'm buggered if I'm going to subscribe to an online newspaper that clutters up my browser with three or four pieces of Adobe Flash shit, surrounding a story that they've got from a stringer on Reuters.
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