Andy Xie: America more likely to crash again in 2011

[pksubs]

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

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.

Whoa!! Never heard of number of sunny days as a sentiment indicator. Do you think free tanning salon sessions for HFTs and traders will be part of the the next stimulus package ;) ??

[nero3]

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

Whoa!! Never heard of number of sunny days as a sentiment indicator. Do you think free tanning salon sessions for HFTs and traders will be part of the the next stimulus package ;) ??

It's not the number of sunny days, but the activity in the sun. When you see the effect on the climate im sure it's having an effect in the market. In the period leading up to 1980, 1989 and 2000 (remember the mild winters?). I think the periods where it's rising where fast, that it's having a positive effect on people, sort of an anti-depressive effect.

So far it looks as if 2009 was the low in the current cycle. In 2009 there was 260 days with no solar sun spots, while in 2010 it's only been 50, however levels are still extremely depressed. I think the data suggest the low was hit in mid 2009.

[coolhand]

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

This is a very interesting scenario analysis, thanks for posting. One thing I would throw in as food for thought on the "is China's currency over or undervalued" question is that we seem to be discussing this based on a view towards the past, where currencies were key determinants in driving trade relationships.

However, I think there is a real chance the game may be changing in the next 10 years, whereby it becomes less relevant how strong a nation's currency is relative to another nation's currency, & more relevant how strong a nation's currency is relative to the key raw material resources that economy needs to feed its economy.

Consider, in the last 60 years, when oil is cheap, the US has been strong & the Soviet Union/Russia weak. The opposite has been true when oil is expensive. So what happens if the world is now entering a phase of increasing resource scarcity? The playbook of the last 30-40 years of weakening your currency relative to other currencies will prove wrong, b/c it will simply price you out of the market for raw materials which are now becoming increasingly scarce, & therefore more expensive.

I wouldn't be surprised to see the Chinese allow their currency to strengthen v. the USD sometime in the next couple years. And while Washington DC will hail it as a (short term) political victory, our politicians and media would once again miss the bigger story there: a stronger currency would make oil, copper, corn, soybeans, coal, etc. cheaper to China. Jevon's Paradox notes that as an energy supply gets cheaper, people consume more of it. So the Chinese would allow the RMB to appreciate, the Americans would cheer, & then the US economy would get buried as a stronger RMB outcompetes a weaker USD for scarce oil, copper, coal, etc., & China's economy thrives as energy & other critical inputs gets marginally cheaper in China, & marginally more expensive in the US.

So unlike in prior periods, where resource scarcity was not a factor, the Chinese could actually RAISE their countries living standards by letting their currency APPRECIATE, v. the beggar-thy-neighbor currency policies that have been used to spur economic growth since at least the Great Depression here in the US.

I'd love to hear someone's thoughts on this thesis.

[jk]

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

This is a very interesting scenario analysis, thanks for posting. One thing I would throw in as food for thought on the "is China's currency over or undervalued" question is that we seem to be discussing this based on a view towards the past, where currencies were key determinants in driving trade relationships.

However, I think there is a real chance the game may be changing in the next 10 years, whereby it becomes less relevant how strong a nation's currency is relative to another nation's currency, & more relevant how strong a nation's currency is relative to the key raw material resources that economy needs to feed its economy.

Consider, in the last 60 years, when oil is cheap, the US has been strong & the Soviet Union/Russia weak. The opposite has been true when oil is expensive. So what happens if the world is now entering a phase of increasing resource scarcity? The playbook of the last 30-40 years of weakening your currency relative to other currencies will prove wrong, b/c it will simply price you out of the market for raw materials which are now becoming increasingly scarce, & therefore more expensive.

I wouldn't be surprised to see the Chinese allow their currency to strengthen v. the USD sometime in the next couple years. And while Washington DC will hail it as a (short term) political victory, our politicians and media would once again miss the bigger story there: a stronger currency would make oil, copper, corn, soybeans, coal, etc. cheaper to China. Jevon's Paradox notes that as an energy supply gets cheaper, people consume more of it. So the Chinese would allow the RMB to appreciate, the Americans would cheer, & then the US economy would get buried as a stronger RMB outcompetes a weaker USD for scarce oil, copper, coal, etc., & China's economy thrives as energy & other critical inputs gets marginally cheaper in China, & marginally more expensive in the US.

So unlike in prior periods, where resource scarcity was not a factor, the Chinese could actually RAISE their countries living standards by letting their currency APPRECIATE, v. the beggar-thy-neighbor currency policies that have been used to spur economic growth since at least the Great Depression here in the US.

I'd love to hear someone's thoughts on this thesis.

http://www.itulip.com/forums/showthr...=2954#post2954

that's my summary of an interview with peter schiff in sept 2006:
"he says that weakness in the u.s. economy will trigger a significant decline in the dollar vis a vis other currencies, and especially vis a vis asian currencies. a recession here will lower u.s. demand enough so that, for example, global oil demand will fall. the dollar's fall will be such that the price of oil will nonetheless rise in terms of u.s. dollars; but it will fall in terms of other currencies. this same process will raise the cost in u.s. dollars of food, consumption goods, and commodities, but in so doing will destroy enough u.s. demand that overall global demand will fall, and the prices of those items will fall for non-u.s. consumers. the fall in the dollar will also coincide with a sell-off in bonds which will raise interest rates, raising the cost of servicing adjustible rate mortgages. the fed will be dragged along to higher short term rates, trying to get longer rates contained without resorting to non-traditional market interventions which would lead to hyper inflation. [this last sentence is more than what he said- he just stated that the fed would be dragged to higher rates by the fall of the dollar. i am postulating a mechanism for that phenomenon.] the recession will be measured not in quarters but in years. [this last statement, on the duration of the recesssion, is pretty much verbatim.]

a fall in u.s. demand sufficient to lower total global demand will lower prices of tradeable goods and services to non-u.s. consumers, which will be stimulative to foreign economies. foreign domestic demand will rise and companies aimed at non-u.s. domestic demand will do well, while those dependent on export to the u.s. consumer will be hit. "

[nero3]

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

http://www.itulip.com/forums/showthr...=2954#post2954

that's my summary of an interview with peter schiff in sept 2006:
"he says that weakness in the u.s. economy will trigger a significant decline in the dollar vis a vis other currencies, and especially vis a vis asian currencies. a recession here will lower u.s. demand enough so that, for example, global oil demand will fall. the dollar's fall will be such that the price of oil will nonetheless rise in terms of u.s. dollars; but it will fall in terms of other currencies. this same process will raise the cost in u.s. dollars of food, consumption goods, and commodities, but in so doing will destroy enough u.s. demand that overall global demand will fall, and the prices of those items will fall for non-u.s. consumers. the fall in the dollar will also coincide with a sell-off in bonds which will raise interest rates, raising the cost of servicing adjustible rate mortgages. the fed will be dragged along to higher short term rates, trying to get longer rates contained without resorting to non-traditional market interventions which would lead to hyper inflation. [this last sentence is more than what he said- he just stated that the fed would be dragged to higher rates by the fall of the dollar. i am postulating a mechanism for that phenomenon.] the recession will be measured not in quarters but in years. [this last statement, on the duration of the recesssion, is pretty much verbatim.]

a fall in u.s. demand sufficient to lower total global demand will lower prices of tradeable goods and services to non-u.s. consumers, which will be stimulative to foreign economies. foreign domestic demand will rise and companies aimed at non-u.s. domestic demand will do well, while those dependent on export to the u.s. consumer will be hit. "

The relative speculative boost the commodities get is making the raw materials much more expensive even in those countries who have currencies that rise relative to the US dollar. It's only gold that's rising relative to some commodities that's suffering from low demand. None of the Asian countries is on a gold standard. The chinese money supply have expanded more 500 % over the last 9 years. I think he is like someone saying smoke smoke, come on to my ship of australian dollar and HK stocks, plus some gold miners so you can avoid the danger in those US blue-chip stocks you hav your money in". Bill Gross have lately made warnings the bull-market in bonds is over. I certainly wonder if Schiff will do that for his clients if gold get there above 4000 dollar. http://www.youtube.com/watch?v=cuwHYwyKnZI Great interview with Gross, much more valuable than many other
investing videos that's out there.

I suspect Schiff will due to his politics agenda and faith in gold will be unable to get out in time, I don't think he have the humble attitude that's so needed.

[jk]

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

my point in bringing back that scenario of schiff's was to say that we've been kicking around these same ideas for over 4 years now. whether it will come to pass, remains to be seen.

[aaron]

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

Also, it is probably warmer/wetter with better crop yields at the same time. Combine that with a lot of dollars in the world's economy... and you get the seeds for the next boom.
As the dollar loses strength, U.S. balance of trade should improve. Who knows, with the world awash in dollars that slowly loses reserve status, these dollars will start coming home and producing jobs. Exports should explode.
Regardless, metals are a screaming bargain. As we come out of the sun minimum, it will start to get warmer and people will be happier/more optimistic. My silver eagles will shine even brighter.

Unemployment will come down slowly, but that is OK. It is in everybody's best interest to keep the game going. Why should it come to a stop so long as we still have bread/circus/war?

[touchring]

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

So unlike in prior periods, where resource scarcity was not a factor, the Chinese could actually RAISE their countries living standards by letting their currency APPRECIATE, v. the beggar-thy-neighbor currency policies that have been used to spur economic growth since at least the Great Depression here in the US.

I'd love to hear someone's thoughts on this thesis.

Firstly, you must dispel the idea that the CCP really care about raising the living standards of the people. What officials care about is their investments and companies their relatives run.

[c1ue]

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

So unlike in prior periods, where resource scarcity was not a factor, the Chinese could actually RAISE their countries living standards by letting their currency APPRECIATE, v. the beggar-thy-neighbor currency policies that have been used to spur economic growth since at least the Great Depression here in the US.

I have to disagree with this statement.

The cost of China's oil subsidy, while high, isn't that high. More importantly, the subsidy is largely directed toward productive capacity - i.e. energy for manufacturing, transport of goods, building infrastructure, etc as opposed to pure consumption (SUV soccer moms).

Firstly, you must dispel the idea that the CCP really care about raising the living standards of the people. What officials care about is their investments and companies their relatives run.

This is a complete fabrication. While absolutely there is corruption and the desire for personal/familial gain in the CCP - equally so there is fear of popular unrest. How much difference is there between desire to help your constituency vs. fear of doing/not doing things to incite them to riot?

In contrast in the US there seems to be very little of the former and even less of the latter.

Tiananmen wasn't anti-democracy so much as the desire to retain control by nipping a nascent populism in the bud.

[touchring]

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

This is a complete fabrication. While absolutely there is corruption and the desire for personal/familial gain in the CCP - equally so there is fear of popular unrest. How much difference is there between desire to help your constituency vs. fear of doing/not doing things to incite them to riot?
.

Fear of popular unrest also arises on fear of losing their power and profits that comes with that power.

To prevent unrest, there is no need to raise living standards to American levels. Providing adequate sweatshop jobs so that people won't starve, afford to eat KFC once or twice a month, own a mobile phone, is more than sufficient to prevent unrest. If people work from 14 hours day, 6 days a week, they don't have time to plan revolts.

On the other hand, if the people work lesser hours due to a greater purchasing power, they will have too much free time after work. When people are too free, they will demand for more - such as political freedom.

[c1ue]

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

Fear of popular unrest also arises on fear of losing their power and profits that comes with that power.

To prevent unrest, there is no need to raise living standards to American levels. Providing adequate sweatshop jobs so that people won't starve, afford to eat KFC once or twice a month, own a mobile phone, is more than sufficient to prevent unrest. If people work from 14 hours day, 6 days a week, they don't have time to plan revolts.

Your prescription didn't work in the US in the early 1900s, and it isn't going to work in China.

Living standards must increase in an appreciable manner or else there will be unrest. Seeing oligarchs running around with literally 100- or 1000- or million- times more purchasing power only increases the unrest.

On the other hand, if the people work lesser hours due to a greater purchasing power, they will have too much free time after work. When people are too free, they will demand for more - such as political freedom.

Hmm, so how do you explain the slave and peasant revolts throughout history? They weren't starving, they were productively creating value for their society.

Human beings are stupid in many ways, but they are very acute at discerning imbalance and lack of social justice.

[touchring]

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

Your prescription didn't work in the US in the early 1900s, and it isn't going to work in China.
Human beings are stupid in many ways, but they are very acute at discerning imbalance and lack of social justice.

There is acute social imbalance in the city of Singapore, no unemployment benefits, no official minimum wage (the market established minimum wage is $1.50 an hour for janitorial work, consider that in the context of NYC cost of living), minimum social security, no real labor unions, indentured labor is common, including indentured sex workers, often not knowing what the job is about until arriving at the workplace.

But zero unrest.

The secret formula?

Almost full employment + high cost of living (inflation) + no minimum wage + lack of social security

This formula ensures that people got to work all the time to earn enough in order to survive, and when people work all the time, they don't have time to think funny. If you noticed, inflation (distinct from hyperinflation) is part of the formula, which is ironical because the conventional belief is that inflation will cause unrest, when the opposite is true. What causes unrest is unemployment - which btw, is not because people are in hardship, but because they got too much free time on hand. However, inflation will switch from being an advantage to a disadvantage if unemployment rises, because of the double whammy effect.

This kind of system which originates from the feudal society, may sound crazy to the Western mind or someone brought up in a western environment.

The fear of unemployment is the key weakness in such a system. It is so fear that in fact, the Singapore government had a program with selected big corps, which includes Citicorp, to subsidize the entire wage of college graduates they employed during the financial crisis for a one year period.

[c1ue]

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

There is acute social imbalance in the city of Singapore, no unemployment benefits, no official minimum wage (the market established minimum wage is $1.50 an hour for janitorial work, consider that in the context of NYC cost of living), minimum social security, no real labor unions, indentured labor is common, including indentured sex workers, often not knowing what the job is about until arriving at the workplace.

But zero unrest.

The secret formula?

The same could be said for New York. Or London. Or Geneva. Or San Francisco.

Singapore is a bankster parasite attached to Asia - Malaysia provides the cheap labor in the form of nearby non-citizens while China, Burma, and India provide the oligarch money which finds Singapore a safe haven.

Almost full employment + high cost of living (inflation) + no minimum wage + lack of social security

Sure, easy to have full employment when you have a gigantic non-citizen working class which can be evicted anytime inconvenient, or increased anytime necessary.

Having all that drug lord/oligarch/kleptocrat loot sitting in Singaporean banks doesn't hurt either.

The fear of unemployment is the key weakness in such a system. It is so fear that in fact, the Singapore government had a program with selected big corps, which includes Citicorp, to subsidize the entire wage of college graduates they employed during the financial crisis for a one year period.

Yes, the oligarchs of Singapore are just terrified of the citizenry. Lee Kuan Yew and his descendants - they're all about the free press and an open opposition. And equality among citizens ethnic Chinese or otherwise.

Or maybe it is just that they have lots of money to throw around.

[touchring]

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

Yes, the oligarchs of Singapore are just terrified of the citizenry. Lee Kuan Yew and his descendants - they're all about the free press and an open opposition. And equality among citizens ethnic Chinese or otherwise.

Yes, they are very scared of it, which is the reason why you can find even more objective news on Xinhua news website. But this is a losing war because the younger generation can surf the Internet, so domestic press can only target the 60s, 70s and uneducated folks which isn't a small group either.

Lee Kuan Yew is already 87 years old, not many years left, particularly for someone has hasn't retired and still under stress. Being the only person in charge for more than half a century, which by the way is a world record for a non-Monarch (at least official one), if he goes, a power vacuum would lead to a power struggle within the oligarchy.

So ironically, the oligarchy he created would devour his descendants, not the press, the position or the people.

[qwerty]

What's the win-win trade if Xie is right?

It seems that in recent years there has been no diversification; every investment is either a proxy for being long growth/risk, or short it.

But if Xie is right and there are two possible outcomes: a) China crashes as inflation bubble pops, US grows stably, and b) US debt collapse causes dollar to crash,with China growing stably; Do these predict a binary outcome for any investment, or do they each predict a similar outcome for some asset class or other.

For example, when I read the article and the posts here, it seemed that in both scenarios, we'd see a positive nominal growth in the US economy. Real as well as nominal in case (a), but perhaps only nominal in case (b). Still, there are ways of making money on nominal price rises.

I am not putting that forward as a well thought out thesis, but just to put forward the question: Is there an asset class which can be expected to go the same way (up or down in price) in both scenarios (a) and (b). Or is every asset poised to go in opposite directions depending on how things turn out?