Andy Xie: America more likely to crash again in 2011

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

I think this could go one of these ways:

Emerging market's roll over, China have a hard landing after trying to control inflation, and there opens up a situation where the US can close the output gap without causing inflation, causing a 1990 like boom, of at least 5 years. This could push the Dow Jones out of the flat trend, and towards 20-30000

The other option is that the boom in the US becomes more of high inflation game, while emerging markets bubble up from 14 times earnings now, to atleast 40 times earnings, while gold and China keep going fast forward, with a stop to the game happening around 2013-2014

[touchring]

Re: Andy Xie: America more likely to crash again in 2011

The timing is when the dollar turn around. It also seems that he thinks the Chinese economy can do well with a slower growth rate, less inflation, less government spending (revenue to the local government comes from the housing bubble ), that in turn could stimulate more consumtion.

My understanding is that the Chinese govt must print money to maintain the peg. If so, I don't see them yielding on the peg in the near term because it will be a loss of face to do so - of cos, it may turn out the other way, if sufficient force is applied, as we have seen in the case of North Korea recently.

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

My understanding is that the Chinese govt must print money to maintain the peg. If so, I don't see them removing the peg in the near term because it will be a loss of face to do so - of cos, it may turn out the other way.

The last time it blew up in around 1993 they had to hike interest rates to around 20 % and devalue the currency.

There was an effect after the shanghai index peaked in 2007 of inflation going nuts. I think this was due to the stock market having a calming effect on CPI as long as the game went on and the stock market bubble took the bulk of the money supply. Could they get the stock market bubble going again it could have a good effect on reducing inflation. If they started to make the RMB stronger at a more steady pace, that could be the trigger for blowing up the stock market bubble again.

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

I saw that Wal-Mart recently together with 5 other companies put 500 million USD into the Chinese online retailer . I can't understand what they were thinking on. They could created it from nothing for a much, much lower cost. US companies simply have so much cash that they don't know how to use it properly. It's very visible with the recent google bid for groupon.

http://www.360buy.com/

All these chinese internet companies have to dull web pages and look so amateur like. I don't get it.

[charliebrown]

Re: Andy Xie: America more likely to crash again in 2011

welcome back nero! I missed you.

[FrankL]

Re: Andy Xie: America more likely to crash again in 2011

I saw that Wal-Mart recently together with 5 other companies put 500 million USD into the Chinese online retailer . I can't understand what they were thinking on. They could created it from nothing for a much, much lower cost. US companies simply have so much cash that they don't know how to use it properly. It's very visible with the recent google bid for groupon.

http://www.360buy.com/

All these chinese internet companies have to dull web pages and look so amateur like. I don't get it.

Sometimes dull amateur looking websites do better than professionally looking ones. Read into the success of plentyoffish.com

[touchring]

Re: Andy Xie: America more likely to crash again in 2011

I saw that Wal-Mart recently together with 5 other companies put 500 million USD into the Chinese online retailer . I can't understand what they were thinking on. They could created it from nothing for a much, much lower cost. US companies simply have so much cash that they don't know how to use it properly. It's very visible with the recent google bid for groupon.

http://www.360buy.com/

All these chinese internet companies have to dull web pages and look so amateur like. I don't get it.

The minimalistic design is adapted from the Japanese.

I believe JV is the only way foreign companies wanting to invest in China - lest ending up like Google.cn.

The situation in China is much more complicated than what we see in Japan in the 80s. It is not just pure capitalism or making money alone, there's a ultranationalistic, somewhat megalomaniac element to it, similar to Japan after the Meiji revolution, yet also not quite similar since Japan was already developing into a democracy by then.

It is not just the economy, politics can affect investment and business. Businesses that invested in North Korea are now crying.

[FondoFinder]

Re: Andy Xie: America more likely to crash again in 2011

I have read that China has TV ads urging people to buy Gold. The intrepid video below points out that by issuing gold coins at a particular face value in Yuan, the Chinese government can not only curb real estate and inflation pressure, but actually use its own Chinese citizens to help dethrone the U.S. dollar as the reserve currency for foreign transactions, and reduce reliance on the US consumer, replacing them with Chinese consumers:

http://www.youtube.com/watch?v=YPXncTuwFIE

[c1ue]

Re: Andy Xie: America more likely to crash again in 2011

Much of the discussion on this thread seems to miss the point of the article, at least to me.

What Andy Xie is saying is essentially that the US and China are locked in a zero sum game of economic chicken:

The US is attempting to devalue the dollar and in doing so, drive China into a inflationary bubble which will then burst. The bursting of said bubble will then benefit the US by again propping up the devalued dollar, allowing the US to regain some of its lost purchasing power (via safe haven Treasury purchases) while simultaneously reaping the benefit of more dollars (devaluation of debt via QE).

China in turn is waiting for the US' devaluation to runaway into hyperinflation - capped by the end of the US dollar as world reserve currency.

Xie makes an interesting point: the evolution of China's bubble is via real estate - specifically conversion of land into local government revenue via speculative bank borrowing.

I'm not so sure I agree with his prescription that a choking off of this cycle will fix the inflation problem - especially since this presumes the central government of China cannot control its local government underlings, but nonetheless an interesting viewpoint.

[touchring]

Re: Andy Xie: America more likely to crash again in 2011

I'm not so sure I agree with his prescription that a choking off of this cycle will fix the inflation problem - especially since this presumes the central government of China cannot control its local government underlings, but nonetheless an interesting viewpoint.

The Singapore experience in 1998 is probably the closest example where the government has some success in controlling a bubble, although the bubble still burst, although with lesser damage than the rest of Asia.

The consensus by party kind of control the Chinese government has today is not even close to the DPRK like dictatorial control the Singapore government had at that time.

It is never possible to prevent a bubble burst. You can delay it, yes, at the expense of a more serious collapse, which is what is happening right now.

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

Much of the discussion on this thread seems to miss the point of the article, at least to me.

What Andy Xie is saying is essentially that the US and China are locked in a zero sum game of economic chicken:

The US is attempting to devalue the dollar and in doing so, drive China into a inflationary bubble which will then burst. The bursting of said bubble will then benefit the US by again propping up the devalued dollar, allowing the US to regain some of its lost purchasing power (via safe haven Treasury purchases) while simultaneously reaping the benefit of more dollars (devaluation of debt via QE).

China in turn is waiting for the US' devaluation to runaway into hyperinflation - capped by the end of the US dollar as world reserve currency.

Xie makes an interesting point: the evolution of China's bubble is via real estate - specifically conversion of land into local government revenue via speculative bank borrowing.

I'm not so sure I agree with his prescription that a choking off of this cycle will fix the inflation problem - especially since this presumes the central government of China cannot control its local government underlings, but nonetheless an interesting viewpoint.

I read Xie warnings that the oil price was set to collapse in 2005. I certainly think it's all a matter of timing. Oil was at around 50-60 dollar at the time. It could be that the time has come, but it seems to me it's possible this resource boom could go further to before it pop. He was certainly still more lucky than Krugman than went out an insisted in June 08 with oil at around 125 dollar right before it went down that oil were not in a bubble. He is doing the same thing again and might be wrong again if China goes for a hard landing. Even Warren Buffet bought heavy in COP oil shares before oil went down then, and now he is appearently looking at coal companies. It seems many think the fundamental story is true. I doubt it, but I would not rule out that Warren Buffet could be the one speculating on copper through JP Morgan.

I don't think the game of chicken is something the US, and the federal reserve is aware of, however they are aware that they really are quite sober in their monetary policy, while the BRIC economies are in up to their neck in money printing. The weak dollar is the glue that keeps emerging economies together. When I think of the Lula success story in Brazil, it could go on, but somehow I think it's hard to replicate. He had an incredible approval rating when he left, something that might indicate a top. I think it's incredible how much faith some conspiracy theorists put in the leaders when it comes to their competence and plans. Incompetence is the general rule. The money growth in China have been spectacular relative to the slow growth in devenloped economies. The FED is going straight forward and in the past it seems that whenever they have been in printing mode it have eventually triggered a strong dollar and a strong economy, emerging economies just needs to fall off the wagon. One things that concerns me is that Bernanke don't seem to get the benefit of a strong currency. I think he kind of look up to the seventies inflation boom or the inflationary WW2 like boom in the US as great times. In a sense he is right. The US needs a weak dollar, a very weak dollar to get back a real economy that's not another bubble.

[c1ue]

Re: Andy Xie: America more likely to crash again in 2011

I don't think the game of chicken is something the US, and the federal reserve is aware of, however they are aware that they really are quite sober in their monetary policy, while the BRIC economies are in up to their neck in money printing. The weak dollar is the glue that keeps emerging economies together. When I think of the Lula success story in Brazil, it could go on, but somehow I think it's hard to replicate. He had an incredible approval rating when he left, something that might indicate a top. I think it's incredible how much faith some conspiracy theorists put in the leaders when it comes to their competence and plans. Incompetence is the general rule. The money growth in China have been spectacular relative to the slow growth in devenloped economies. The FED is going straight forward and in the past it seems that whenever they have been in printing mode it have eventually triggered a strong dollar and a strong economy, emerging economies just needs to fall off the wagon. One things that concerns me is that Bernanke don't seem to get the benefit of a strong currency. I think he kind of look up to the seventies inflation boom or the inflationary WW2 like boom in the US as great times. In a sense he is right. The US needs a weak dollar, a very weak dollar to get back a real economy that's not another bubble.

Huh? Did you actually read what you wrote here? The first part of the first sentence directly contradicts the 2nd part of the same sentence. For one thing - how can the US unknowingly be printing money yet knowing condemn China for 'manipulating' its currency?

As for Lula - there are lots of negative things you can say about him, but he is in reality a pro-business person harvesting Brazil's relative oil independence and lack of FIRE influence. The socialism is just how he got elected.

And as for the last sentence, again your train of thought is incomprehensible.

The US spends 1/3 of its gigantic trade deficit on just oil. A weaker dollar and thus higher priced oil has consistent and clear impact on the US economy. Almost every recession in the past 3 decades has been accompanied by higher oil prices. Andy Xie also points out some 3% of US GDP is directly related to the US dollar being the reserve currency.

Add this all together - and a policy of dollar devaluation looks exactly like what it is: a game of chicken.

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

It's possible it is a game of chicken, but it's not a planned one. China is not so important for the FED that they sit and think now we must do QE2, because China won't let its currency rise, I don't think that's what Xie is saying, but some cold think that he is accusing the US of intentionally playing chicken with China, thats more the practical outcome, not the intension of the FED. Nobody in the FED thinks "now we must print a ton of money so China overheat and we will have our bubble boom".

On the dollar. The problem for the US is that even the economy could recover with a strong dollar now, it would most likely be a bubble economy, not solving the fundamental problems. The trade deficit could be reduced by just increasing taxes on oil to the level where it disappeared, then tax chinese imports hard. The US could run a trade surplus with a weak dollar.

[touchring]

Re: Andy Xie: America more likely to crash again in 2011

What the Fed is doing is the free market way of resolving the trade deficit and growth problem. China is trying as hard as possible to resist or perhaps to delay an appreciation of the RMB because of face (or rather arrogance) and also for practical reason, a lot of Chinese factories are going bust due to over supply - this is one aspect of the Chinese growth story that no one reads about. When real estate is already hot, printing money will result in an even bigger bubble. In recent months, the bubble in real estate has spread to food and wages, so while the peg remains, prices in RMB have risen against other currencies, making the peg irrelevant.

The reason for this imbalance is the glut in job seekers. China adds more than 20 million new job seekers every year, all hoping to find a real job (not just living off by subsistence farming). The number of new job seekers is more than what the world economy can absorb.

Unlike the US whenever the government fails to manage the economy properly, the party will be voted out. This doesn't happen in China because there are no elections so there is no avenue for the people to release their angst. If the people are angry, they will start to focus on government officials, particularly corruption. When the economy is good, no one care much about the corruption, as was in the case of Indonesia pre-asian financial crisis, but when crisis hits, people want blood and the CCP politburo will have no choice but to start investigating. This is what many CCP officials fear, corruption in China is punishable by death, and probably the real reason why China is so scared of removing the peg.

Andy Xie doesn't talk about all this, which is understandable, he'll be fried alive if he does.

Nobody in the FED thinks "now we must print a ton of money so China overheat and we will have our bubble boom".

On the dollar. The problem for the US is that even the economy could recover with a strong dollar now, it would most likely be a bubble economy, not solving the fundamental problems. The trade deficit could be reduced by just increasing taxes on oil to the level where it disappeared, then tax chinese imports hard. The US could run a trade surplus with a weak dollar.

[nero3]

Re: Andy Xie: America more likely to crash again in 2011

What the Fed is doing is the free market way of resolving the trade deficit and growth problem. China is trying as hard as possible to resist or perhaps to delay an appreciation of the RMB because of face (or rather arrogance) and also for practical reason, a lot of Chinese factories are going bust due to over supply - this is one aspect of the Chinese growth story that no one reads about. When real estate is already hot, printing money will result in an even bigger bubble. In recent months, the bubble in real estate has spread to food and wages, so while the peg remains, prices in RMB have risen against other currencies, making the peg irrelevant.

The reason for this imbalance is the glut in job seekers. China adds more than 20 million new job seekers every year, all hoping to find a real job (not just living off by subsistence farming). The number of new job seekers is more than what the world economy can absorb.

Unlike the US whenever the government fails to manage the economy properly, the party will be voted out. This doesn't happen in China because there are no elections so there is no avenue for the people to release their angst. If the people are angry, they will start to focus on government officials, particularly corruption. When the economy is good, no one care much about the corruption, as was in the case of Indonesia pre-asian financial crisis, but when crisis hits, people want blood and the CCP politburo will have no choice but to start investigating. This is what many CCP officials fear, corruption in China is punishable by death, and probably the real reason why China is so scared of removing the peg.

Andy Xie doesn't talk about all this, which is understandable, he'll be fried alive if he does.

I think he talks about those things, I have seen interviews where he certainly talks about corruption and social unrest. I think he seems quite blunt.

One thing nobody talks about is the low in solar activity and the extremely low temperatures this winter. I think levels are so depressed that it is destined to turn around and will impact the economy. Very high levels are typical when there are bubble conditions. Like in 1980 for gold or in 2000 for the nasdaq, or even in 89. When levels get high again some huge bubble is probably going to peak, I just don't know what asset, but that's what the sun is telling. I think the level of solar activity affect peoples mood, if it's rising very fast it's going to have an impact, that in turn affect the whole economy and stock market.