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--------------------------------------------------------------- Joel Bowman, reporting from Taipei, Taiwan... Even now, as your weary editor sits down to pen the day's thoughts (well after midnight on Friday night), the firecrackers can still be heard overhead. The markets in the alley next to our building were bustling late into the evening with people stocking up on essentials - fruits, meats and flowers - in preparation for this weekend's celebrations. From tip to subtropical tip, all across this tiny island of Taiwan, locals are getting ready to party like its '99. (For them, as of tomorrow, it is.) All week we've watched with interest the goings on from our balcony. The labyrinthine corridors winding off the main roads are alive with excitement. Vendors busy themselves with final sales...children skip down the lanes alongside their parents...women scrub the windows furiously while their men prune the trees, finish up last minute renovations and generally scuttle about, making certain everything is "just so" before the celebrations begin. Even the old hunchback lady who - as far as we've been able to tell - collects the recyclables around our block, seems to have quickened her pace. "Everything must be ready by weekend," the man at our front desk told us. "It is much like...how do you say...a new slate. No...wait...a clean leaf. Well, you know, I sure." The Chinese New Year spectacle here in the ROC promises to be, at the very least, intriguing...but it will be nothing like what's already underway over on the mainland. In China, as you read this column, the largest human migration on earth is taking place. During the next few weeks, hundreds of millions of people will shuffle around the country, most returning home from the pulsing cities in the east to visit their families in the countryside. Some will ride their bicycles or hitch rides with friends; others will fly for the first time ever; and still others will ride in comfort on the world's fastest passenger train. The Ministry of Railways actually estimates that 210 million passengers - somewhere between the populations of Indonesia and Brazil - will ride the rails during the 40-day New Year travel season, a 10% increase over last year. But aside from all the festivities, people want to know: What does the New Year, the year of the Tiger, hold for the world's most populous nation? For the past twenty years or so the China Play has been more or less a one-way bet, albeit a rather volatile one along the way. China's economy (as measured by GDP) doubled over the past twenty years...twice. But opinions on how it will proceed from here differ greatly. Legendary investors like Jim Rogers foresee a Middle Kingdom set to rule the world. Others, notably Jim Chanos, see China as the mother of all bubbles. "Dubai times 1,000," he calls it. So, what will it be? Your editor has no idea, of course...only rough guesses and wild speculations. (The tiger, in case you are the superstitious type, is said to be an extremely tumultuous sign. One website we read noted, "The year of the Tiger is very likely to be a volatile year, everything is taken to its limit in this big and bold year. It can also be a year of war, disasters and all kinds of disputes, it is a year for massive change..." Like we said... If you're the superstitious type...) When considering all things China - political, economic, social - it is near impossible to get anything right, except by accident. The numbers are big...the scale and velocity of expansion unprecedented...and the government unreliable, though predictably so. China's hoard of Uncle Sam's IOU notes, the world's largest, is staggering...likewise are its strategic stockpiles of natural resources, from it's own rare earth deposits to energy contracts around the globe to its rapidly expanding portfolio of foreign farmland. And that's to say nothing of her swelling pile of gold... But even if China does ascend to the heights some expect she will, the trajectory won't be without corrections, overshoots and more corrections. Data released this past Thursday indicated a fierce acceleration in bank lending - despite the government's prior efforts to "cool" the system - and a larger than expected bump in inflation. According to figures provided by The People's Bank of China, lending by the nation's banks totaled 1.39 trillion yuan ($203.5 billion) during the month of January, more than three times the 379.8 billion yuan extended in December and equivalent to almost 20% of the total target for the whole year. Other stats, however reliable they may or may not be, showed that money supply - as measured by M2 - was up a whopping 26% at the end of January from the year-earlier month. China's PPI (Producer Price Index) rocketed up 4.3% from the same period last year, accelerating from a 1.7% rise in December. What does this mean? Does it suggest that the economy is overheating? Or can the increases be attributed to "outlier" events - the date the New Year festival falls on, for instance, or heavy snowfall in early January pushing up prices - as many analysts have been quick to suggest. Again, we can't say for sure...not with the certainty of an astrologer, in any case. But we do know that a drastic increase in the money supply leads, eventually, to a drastic increase in prices. And we're seeing plenty of that. The price of real estate, for one thing, is headed higher...much higher. Thursday's same data dispatch showed that prices across the nation's 70 largest cites rose 9.5% in January from a year earlier, quickening from a 7.8% rise in December. Bubbling real estate prices, coupled with the aforementioned inflation figures, prompted China's central bank late Friday to introduce further measures designed to curb bank lending. Large banks are now required to park 16.5% of their total deposits in the central bank. Smaller banks are already ordered to keep 14% of their deposits in the same coffers. Will it work? Who knows? Perhaps China's central planners will achieve what has eluded generations of their central planner forefathers...perhaps they will be able to control, with levers and pulleys in the basement, the perfect flow of funds to exactly the right sectors at precisely the right time. This year is not only the Year of the Tiger, it is the Year of the Metal Tiger, something that occurs only once ever 60 years in the Chinese calendar. In fact, the last time China rang in a Metal Tiger, Chairman Mao had just taken control of the land and promptly embarked one of the bloodiest experiments in central planning in history. Of course, everybody knows astrology is just a bunch of baloney. Now, who wants to tell the Chinese? | |
ALSO THIS WEEK in The Daily Reckoning... By David Walker New York, New York Perhaps because we are a young country, Americans tend not to pay much attention to the lessons of history. Well, we should start, because those lessons are brutal. Power, even great power, if not well tended, erodes over time. Nations, like corporations and people, can lose discipline and morale. Economic and political vulnerability go hand in hand. Remember, without a strong economy, a nation's international standing, standard of living, national security, and even its domestic tranquility will suffer over time. By Dan Denning Melbourne, Australia If you've been thinking about reducing exposure to stocks, now might be a good time. And if you've been thinking about increasing your exposure to precious metals, now might be a good time. Last time the world's financial markets panicked, something strange happened: the US dollar and US bonds rallied while stocks, commodities, and emerging markets sold off. The same thing could be happening now. It's not so much a flight to quality as it is a flight to liquidity and a massive case of global risk aversion. By Chris Mayer Gaithersburg, Maryland Last month, I traveled halfway around the world to Australia and New Zealand while researching one of my favorite investment themes: the growing scarcity of resources like water, farmland, and energy. One of the highlights of my trip was taking a group of subscribers to visit one of the world's best resource investors - Rick Rule - at his farm outside of Auckland, New Zealand. After eating lunch, we got down to the business of the market. By David Galland The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit. And there was no one in the nation I wanted more than Andy to address the critical topic of real estate. By Bill Bonner Baltimore, Maryland Gerald Ford had the right idea. The year was 1975. New York City was in financial trouble. It had to borrow to pay its operating expenses. And lenders were getting tough. So Mayor Abe Beame turned to Washington, begging for a bailout. But America still had a vestigial sense of financial integrity back then. The Big Apple was lucky; America's president told Beame to "drop dead." With no other option available, New York's politicians had to do the right thing - they cut expenses and the city flourished. The Weekly Endnote: Just a quick final heads-up for the week. No doubt you've heard about our upcoming Agora Investment Symposium in Vancouver. Well, yesterday we received an email from our conference director, Bruce Robertson, notifying us that he was going to send out a bit of a blast over the weekend, reminding people that the Early Bird spots are almost all gone. Now, that was yesterday...and, from what he told us, there were only a few left. If there are any left by tomorrow morning, they'll likely go pretty quickly. Sooo...if you do want in, but don't want to pay last- minute prices, make sure you get on it and reserve a spot. Details here. And with that, it's off to party like it's '99. Until next week... Cheers, Joel Bowman Managing Editor, The Daily Reckoning | |
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