The Future of the Housing Industry

To get out of the slump of the US housing industry, this idea may be worth considering. I do not take credit for it as I saw this from New York Times blog sites. It is not elegant but it is grounded on reality rather than any fishy, ponzi schemes .

The huge trade imbalance between the US and China means that there are a lot of imports from China shipped across the ocean in containers. But there is really not much to stuff the containers and send them back from the US to China. After all, those airplanes that Chinese bought from Boeing can fly themselves. Since shipping empty containers back to China is not an economically sound action, why don’t we keep those containers and convert them to houses. With a little bit of creativity of molding and decorating, it can be a perfect movable RV which is worth of hundreds of thousands of dollars. It is a super-sized RV indeed. Perfectly American!

House builders, next time when you see containers on interstate highways, think of something else.

Some Truth about Money

A lot of times the best pieces of commentary or analysis appear at the end of each year on newspapers or magazines. Those are the times when people (wise people) spend some time to look back and reckon what has happened for what reason…

The last piece of Jonathan Clements’, a Wall Street Journal columnist—his parting shot at the conclusion of his 26 years’ journalism career, is well worth reading. His column is about money and personal finance.

I doubt that many people, including myself, have not had a real understanding of what money is all about. It is to me so real yet so illusive—maybe for the reason of feeling short of it most of time. But what is money and what does it do to me? I am not sure that I quite understand beyond its economic meaning and the storing function of value and wealth.

So just read on-

GETTING GOING

By Jonathan Clements

Parting Shot: What I Learned From Writing 1,008 Columns

April 9, 2008;

http://online.wsj.com/article/SB120769727703599697.html?mod=hpp_us_personal_finance

If you haven’t liked my previous 1,008 columns, you will like this one. It’s my last.

Some 26 years after I started my journalism career at a small newspaper in the Washington suburbs, I have finally decided to take my mother’s advice and get a real job.

Yes, I am leaving The Wall Street Journal and, indeed, leaving journalism — which means this is my parting shot. That brings me to an issue that I probably should have addressed in my inaugural 1994 column, rather than waiting until now: What is the reason for all this saving and investing?

The short answer is, you save now so you can spend later. But what will you spend your money on? People dream of endless leisure and bountiful possessions.

Unfortunately, after a few months, endless leisure often seems like endless tedium. Similarly, you might imagine that a flashy new car or a fancy new home will be your ticket to eternal bliss. But a year after you make your purchase, the thrill will likely be gone, and you will be lusting after something else. My point: The “rich life” of popular imagination is no great shakes.

That doesn’t mean money can’t enhance your life. In fact, I believe wealth can deliver three key benefits. The good news: If you are savvy, you can enjoy this trio of benefits even if you don’t have great wads of cash. A fat portfolio just makes it all a little easier.

1. If you have money, you don’t have to worry about it. This isn’t guaranteed. There are lots of rich folks who agonize constantly — and needlessly — about their finances. Still, if you save diligently, you should reach the point where money worries are relatively rare.

This feeling of financial serenity isn’t, however, only for the wealthy. If you live beneath your means and invest prudently, you can achieve a sense of financial control long before you achieve full financial independence.

As I see it, this is yet another reason to follow my favorite investment strategy, which is to build a globally diversified portfolio of low-cost index funds.

If you are diversified, you don’t have to fret about your wealth imploding because of a few disastrous stocks or a single rotten market. And if you buy index funds, you don’t have to worry about badly lagging behind the market averages because you or your fund managers pick the wrong stocks.

2. Money can give you the freedom to pursue your passions. Ideally, you want to spend your days engaged in activities that you find absorbing and satisfying, that you feel you’re good at — and where you feel you’re doing good.

Indeed, the happiest retirees are typically those who have a sense of purpose, whether it’s volunteering for their pet cause, coaching a children’s sports team, helping their church or returning to long-neglected studies. Retirement gives them a chance to pursue their passions without worrying about a paycheck.

But again, you don’t need to be financially independent to have a sense of purpose. If you’re young, you can pick a career that is close to your heart. If you’re in your 40s and you have been saving for 15 or 20 years, maybe you can afford to swap into a new job that is less lucrative but more fulfilling.

3. Money can buy you time with friends and family. You don’t just need a reason to get up in the morning. You also need somebody to come home to at night.

Studies have found that regularly seeing friends and family can provide a huge boost to happiness. Money helps in this regard, allowing you to go out to dinner with neighbors, travel to see old friends, take your family on vacation and go to the theater with your spouse. If you don’t need to work or you only work part time, that will help further, giving you more hours to share with the folks you like best.

But while money makes all this easier, it clearly isn’t a necessity. Disgruntled with your lot in life? My advice: Forget spending more money at the mall — and instead spend more time with friends. Your bank account may still be skimpy, but your life will be far, far richer.

Another Chapter about the Fed

 

I have been scratching my head trying to figure out what has happened to the financial market and what are the implications of the Federal Reserve’s actions since the housing market in the US started to crack and a chain of derivatives of debt instruments were collapsed. It is probably one of the best real-life questions for which we cannot find a standard and authoritative answer in any economics textbooks. Unless we believe that the economics is a voodoo science, we should be able to define the current problems and have a sound judgment of what needs to be done to tackle the problems.

So it becomes a perfect excuse for me to get the economics textbook that I had read more than ten years ago. Although the same title, it is many editions later than what I had read at school. The difference is that the content is much richer today. To much of my surprise, the book does read familiar and many reflections of my school times come to mind.

So far, I do not reach any conclusions on what will happen after the Fed’s rescue of the financial market. What I got instead, by flipping through the textbook, is some facts about what the Fed did to its balance sheet and what the follow-up the market will focus on after the current turmoil subsides.

The following are the facts about the Federal Reserve’s book and its actions in recent months about its balance sheet.

 

1. The Fed is a US government branch that is responsible for issuing government IOU to the public in the form of those green papers we hold in the wallet or on bank accounts. The US government also issues debt in exchange of the public’s money to finance the government work. And the Fed is also a buyer or seller of such debts in exchange of greenbacks from the public (or the financial system in another word).
2. Before the financial crisis, the majority of the values held by the Fed is the US treasury securities, which are deemed as the most liquid and secure assets that can be exchanged into real dollars at a stroke of a computer key, because the US government debt (bond) market is a hundred times as big as the Fed’s total assets.
3. The Fed is NOT totally independent from the government although it does not need to rely on the government for its budget and its governors’ tenure is longer than any congress members or the President. But it still needs the approval of the government (i.e. the US Treasury) when it comes to the matter such as loaning securities to banks, because the Fed does not own those securities. Those securities represent the debt obligations of the US government. It is the government, rather than the Fed, who is obliged to pay the interests to whoever holds those debt securities. The Fed alone cannot decide to loan those securities out without the approval of the US Treasury Department.
4. What the Fed did since the end of last year is that it handed out its treasury securities holdings to the commercial banks and later to investment banks, and in exchange, it got back from those banks the securities that are less liquid and are of lower quality as their repayment in full is questionable. As of last week, the Fed loaned out its government securities of about $100billion out of its total assets of $870billion. The amount of the loan is still a small proportion of the Fed’s assets. It is unknown how much securities the Fed received as the collateral from the banks for its $100billion loan.

 

The focus of the Fed’s operations in terms of its effectiveness is two folds:

 

1. How much of these loans will be translated into commercial loans issued by the banks. Interbank lending rate will be an indicator that people will watch closely. As of now, interbank lending is not back to the level before the crisis but much better than the worst it has seen at the height of liquidity crunch. The commercial bank lendings have been curtailed due to the deteriorating balance sheets. With the help of the Fed, lending activities should in theory pick up. But it is not a given. On the contrary, lending activities are expected to shrink despite the Fed’s liquidity action, because the banks have too much lending (leverage) before, and now they have to entrench and reduce the size of the balance sheet, at least in a short period. How short? It is anybody’s guess—from one or two quarters to half a year, a year… This is probably one factor that the Fed is based on to predict the near term economic contraction. Hopefully this is only short-term, and the U-turn of lending activities will not be too far out of sight.
2. Where do these securities loaned by the Fed go? After these loans arrived on the banks’ book, they are equivalent to cold hard cash, which means they can be sold on the bond market for cash in a blink of an eye. Right now, the government securities yield about 5% for long bonds and less than 1% for short term securities. So it is not attractive to let these bonds sit on the balance sheet. And they will inevitably be transferred into other markets seeking higher yields. These places could be stocks, commodities, and emerging markets, wherever it can get a higher return. The liquidity has been injected into the financial system, although it is not in the form of fresh cash. It is nonetheless acting much like the cash and will show their footprint on the markets. Therefore, it is not unsurprising if we see in the coming days that market volatility remains high as the liquidity is put in the “work”. When prices of grain, rice, canola oil, or the prices of gold, oil going up or down in a big swing, is it just a coincidence? Think again.

It is likely to see that the Fed’s actions have relieved the stress of the banking system; however, it is not certain that these actions have solved any fundamental economic problems plagued the housing, consumer debt and commodities markets. There is at least one more act of the Fed to unwind the loans it made to the banks. How the Fed will do it without hurting banks’ balance sheet is not clear. The market will have to deal with that later, if all the current problems are gone. But it may take a long time for the Fed to stage that act.

The economics textbook I have been reading through looks familiar yet provides more analytical tools than the one I read more than 10 years ago. The current economic situation just makes me confident that a new chapter about how and why we have got to the current financial turmoil will be added and the next edition will be out in the near future.

The economist knows at least one thing for sure—that is how the economics of textbooks works.

 

前市不忘后市之师

以下三张图分别是NASDAQ 100（ 从99年到2001年末）， NASDAQ （ 从98年到2002年末），和沪市从05年至今的走势。牛市和熊市的轨迹都写在了这些图上。

至少它们的崛起从图上看来非常相似。 NASDAQ 上升的速度比沪市更快, 但沪市上升的幅度比NASDAQ 更大。

下跌过程： NASDAQ 的跌幅最高达到80%左右。 沪市到目前为止 约40%。 不过，沪市下跌的”路线图”与NASDAQ 的下跌也是极其相似的–至少到目前为止。

我认为沪市面临很多不确定因素，继续下跌的可能性极大。 虽然3300-3500点是一个支撑区，市场会在这一区域反复或反弹，但是再次试探或跌穿3300点的可能性很大。如果相信市场的对称性的话，沪市的上升轨迹就是其下降的镜像。 至少近期市场会找到通向3000点的”路径”。

我想，再跌20% — 3000点以下，我们可以开始准备祭悼熊市的终结。

根据？ 就一点：市场对称性。

看冰上美女掷玉壶

冰壶（curling），在世界上并不是一项很普及的体育运动， 不过 在冰雪运动的王国加拿大来说是非常流行的。至今，加拿大已经是获得这个项目世界冠军最多次的国家。现在，正在加拿大举行女子冰壶世锦赛，名不见经传的中国女队已经两次战胜东道主加拿大队，进入了明天的决赛， 在此间引起了轰动。他们将和加拿大和日本队之间的胜者争夺冠军。

这项体育运动在两三年前对我来说还是很陌生的。不过 自从来到加拿大和看过意大利的都灵冬奥会后，我慢慢发现这是一项非常引人入胜的运动。因为，它需要的不仅是身体技术和技能， 更需要策略和战术的考量。 这种运动没有激烈对抗但是场上的战况会随着每一个冰壶的掷出而发生变化， 所以胜负的偶然性很大， 很揪人心 。而且这是一项动脑子的运动， 通过电视转播， 观众可以同步听到运动员在场上相互讨论如何处理策略问题，也可以了解运动员掷每个冰壶的意图，所以也拉近了运动员与观众的距离。

这次世锦赛， 中国队， 日本队的表现抢眼， 击败了很多欧洲强队。虽然我也没有完整地看过多少场比赛， 但是这个周末有中国队参加的决赛， 是不能错过的。 当美女，运动，智慧融会到洁白的冰面上的一颗颗小冰壶上，它的吸引力会超出你的想象！

评《中国决不能成为美元泄洪的重灾区》

 

读过《中国决不能成为美元泄洪的重灾区》之后，觉得有一些地方值得探讨：

 

拒绝成为泄洪区， 继续为美国廉价打工？

 

作者在开篇头一段就指出了当下经济的问题， 并将其归结为货币汇率的问题。但是作者没有进一步认识到货币汇率问题的实质是因为人为贬低的人民币汇率而造成的贸易失衡。虽然人民币一年来升值10%有余， 但是今天的问题是因为我们长期实行低利率政策而导致巨额贸易顺差的结果。

 

众所周知， 中国的贸易顺差是建立在相对廉价的商品价格上的。特别是在2007年，在生产资料价格在国际市场全线上涨，大都超过30%的情况下，而人民币对美元只是上涨10% 左右， 对欧元基本没有变化。 我们的出口商承受了成本压力，而过低的利率让欧美的消费者依然能享受到廉价的消费品。

 

这就是我们为什么有如此之大的贸易顺差。我们输送到欧美的廉价商品使这些国家保持较低的通货膨胀率。 我们的这些的廉价商品使得美国联储有能力大开闸门， 向市场注入大量美元而不用顾虑通货膨胀。 想一想，美元如此贬值， 为什么美国人的消费能力和生活水准没有明显下降呢？只有两个原因：我们在不断的提供廉价产品以及通过卖方贷款不断向美国人提供资金来购买中国的产品。而后者（卖方贷款）正是由廉价人民币和中国央行不断投资美国国债来实现的。

 

如果我们真的抵制美国联储的廉价美元政策， 唯一的有效办法就是使其政策成本增高：其途径就是人民币升值—美国进口商品价格上升—美国物价上涨—美国利率增高。届时，通货膨胀及高利率迫使美联储不能执行宽松的货币政策。否则， 物价上涨难以控制， 经济萧条是必然的结果。

 

过去十年，我们在廉价出口中享受到了经济高速增长的好处。但是今天，我们有必要清醒地检讨这种经济增长模式；在今天新的经济环境中， 它是否还合理？ 我认为依靠出口拉动经济增长，对于GDP已达三万亿美元的中国来说只会越来越难。 因为，我们不可能每年都生产几千亿美元的过剩产品依赖欧美作为我们的买家。

 

所以，今天我们在讨论人民币是否升值以及升值多少的问题，实际上是在讨论我们是否继续向欧美提供廉价甚至是价值扭曲的出口商品。

 

人民币升值不等于财富缩水

 

作者认为人民币升值，我们的美元外汇储备相对贬值。这只是一个静态单一的观察。人民币升值虽然是外汇储备贬值， 但是人民币的购买力会增前。 国际商品的价格实际上由于人民币升值而下降。 今天，我们的物价没有下降， 不是因为人民币升值没有起到作用，而是因为其升值的幅度太小，太晚。 试想， 如果去年我们的人民币不加速升值，市场的流动性是不是更大？物价， 宏观调控是不是更难？

 

再者，如果我们保持人民币利率不变，难道我们的外汇资产就不缩水了吗？看一看石油去年一年涨了多少美元，黄金涨了多少美元， 小麦，玉米 又涨了多少倍？只盯住美元利率， 我们的美元储备实际上并没有保值，而是在贬值。这是因为美元发行量不控制在我们的手里。我们一相情愿地保美元，可是美国的央行又在做什么呢？

 

从另一方面讲， 货币升值贬值并不能造成金融危机。日元/美元在今年头三个月就升值10%， 但这并不能给日本带来金融危机。危机产生的条件是发生在实物经济失衡的情况下发生的。回想日本经济衰退，东南亚危机， 以及今天美国房地产市场崩溃所导致的金融危机， 都是在实物经济的供需发生了不可逆转的失衡情况下而导致金融市场和外汇市场的失衡， 导致金融资产价格和汇率进行大规模调整。

 

今天的中国，贸易的不平衡，过度依靠出口产业，是制造金融危机的真正风险。就像十年前的东南亚经济危机，当时的原因是那些国家过度依赖外债，造成货币贬值。中国与其唯一不同之处是巨额的外汇顺差。 我们继续在贸易失衡的路上走地愈远，金融危机的危险愈大， 将来调整付出的代价愈高。

 

如果我们保持健康的国际收支， 我们没有必要担心热钱操纵人民币汇率从中渔利。 况且，我们的外汇储备和出口有盈余， 所以担心人民币被挤垮贬值不是目前最紧迫的事情。

 

正如作者所讲，今天的中国是一个开放的经济体， 但是我们还不是完全的开放，尤其是在金融市场方面。这就要求我们的经济政策有足够自我修正的能力，特别是针对没有开放的金货币市场。而不是等到不得已的时候， 在市场逼迫的情况下作出调整。 而现在正是我们认真地，负责任地，现实地考虑这个问题的时候。

股市：一路熊奔

看到消息说一位老汉在股市损失了20 多万元，猝死在重庆的证券交易所。 心里”咯噔”一下。市场只是市场， 如果市场和人命搭到一块儿， 就很悲哀了。

很多人还在争论着股市是否到了摸底爬高的时候， 这沪深股市已一路”泄”到4000 点以下了。从去年夏天6200点到现在的4000 点这个熊市似乎越跑越快了。前几天我还提到股市， 那时还在4500点，一个月的时间不到，又有500点被”熊市（噬）” 掉了。唱多的声音越来越弱了，也奇怪，这人的心理就是这样：5000点，6000点都要大举入市，到了4000点都不敢买了。或许都在想：3000点离我们还远吗？所谓买高不买低的心理是无法改变的吧，人啊！。。。

当然，如果我们真的相信中国经济的潜力，没有理由不相信股市会上涨。不过， 为什么相比之下，中国的股市的跌幅在同期要比美股惨重的多呢？美国房市泡沫拖累美股下跌15%， 而同期沪深股市已下滑30%有余。 这个中的原因值得我们深思。这到底意味什么？

我以为， 没有总涨不跌或总跌不涨得市场。 同理，经济周期也会导致繁荣与衰退。 艳阳高照的时候也就意味着日落余辉的来临。每一次高潮的归宿是向低谷走去，而低谷又是涌动高潮的始作俑者。

朝朝暮暮，潮起潮落， 展示出一个永恒的道理。

Creative Thinking and Disastrous Ideas

Just caught this :

Paul Krugman said he had no clue about what to do with the financial crisis the US.. If one of the best economists says he has no solution to a financial crisis, it tells things are quite serious and can get really ugly. Below is what he said on the New York Times website:

 

What is to be done?

I’ve been reading Tim Geithner’s talk on the financial situation, via Mark Thoma. Lay readers may not know this, but Geithner, as the president of the New York Fed, is at the center of the hurricane: when markets go blooey, it’s generally the New York Fed — which is where the markets are — rather than officials in DC that’s trying to manage the chaos.

Geithner talks in central bankerese, so you have to do some translation, but it’s really quite frightening:

The current episode has a basic dynamic in common with all past crises. As market participants have moved to reduce exposure to further losses, to step on the brake, the brake became the accelerator, amplifying the shock. Measured risk has increased more quickly than many institutions have been able reduce it, and attempts to reduce it have added to volatility and downward pressure on prices, further increasing measured exposure to risk … The rational actions taken by even the strongest financial institutions to reduce exposure to future losses have caused significant collateral damage to market functioning. This, in turn, has intensified the liquidity problems for a wide range of bank and nonbank financial institutions.

That’s pretty close to saying that the financial markets are melting down.

Geithner then goes on to describe the policy measures being taken. And here’s the thing: I don’t think it’s just me, the actions sound trivial compared with the problem. He more or less admits that credit markets are worsening faster than the Fed can cut rates, so that money is effectively getting more expensive, not cheaper; the other measures he describes sound minor. Rearranging deck chairs — that may be too strong, but it’s pretty unreassuring.

So what should be done? I’m not sure (and I’m thinking about it, hard.) For now, I’d just say that this is really, really scary.

While it doesn’t help if people are just pushing fire alarm without doing anything, even worse, there are people doing silly stuff like throwing oil on fire. Two things I heard in the past week are just satirical and sad at the same time, one from China and another from the US.

A Chinese economist, regarding the crumbling stock market in China, suggests that the market hours in China should be shortened to three hours per day. His reason is because the stock market does not produce any wealth and people are speculating all the time and wasting their time and energy. I can’t believe what he said.

I don’t believe he is joking either. But telling this idea to all the brokers, investment banks—”You guys can just work half day from now on.” He will be smashed out of window. That is equivalent to take their jobs off. By the way, the Chinese government reaped over $180billion in stock sales tax over the last year. That’s about the same amount of the government deficit of the whole year. In his logic, since the stock market is not only producing wealth, it also destroyed billions of dollars of wealth-$1 trillion more precisely since last year, how about close it out altogether?

Please, economist, get some trips to the stock exchange rather than just sit at desk working on equations or even worse, rhetoric.

It is not only economist form ivory-tower getting fancy ideas. The best bond trader, Bill Gross, the manager of Pimco with $300billion under management suggests the Fed, in order to rescue the economy, buy out all the toxic papers, that is, worthless credit securities from banks, investment funds and hedge funds –whoever holds them. So they will get rid of all the bad assets and have a fresh start of the lending machine. This is like an un-capitalist bailout of the greed-and-fear gripped financial institutions. But wait a minute. Although the Fed can replenish coffers of banks’ or funds’, would the banks lend to people without incomes? The economy can get on track as if nothing happened? And people will swing into the real estate market? The answer is No. Year 2008 is no longer 2004 or 2005. The Fed’s injection did not help banks and economy, and what it did is pushing oil from $90 to $105 today since it started to throw money to the banks 6 months ago.

Please, the Fed, work your printing press with care.

As I said many days ago, time heals everything, because, time is, in economics jargon, an independent variable that we are completely powerless to influence on. But from here to there, be prepared for tough time. Just think of Japan when we have no clue about what happened and will happen.

A Test of Market Wisdom

After Texas, Ohio primaries, people are still expecting Obama to get nominated. It is an interesting experiment of whether “market wisdom” will prevail. So far, Obama still leads by a big margin, at least in this intrade.com contest.

 

 

Obama Over Clinton – The Market View

The chart below is an update of the market expectation on Democratic nomination of Obama and of Hillary Clinton—as of morning on Mar 4^th , right before the Texas and Ohio primaries. It is a 4:1 favor for Obama.

See what will happen after tonight’s results.

-from www.intrade.com