...it will seem obvious to historians that this was a plutocratic oligarchy that was able to convince its populace (via censorship and propaganda) that its platonic theory of justice ("everyone know their place") just long enough to create a fully-fledged export economy and concentrate wealth almost exclusively among the ruling communist party...then things went very, very wrong...
China’s economic growth since the turn of the 21st century has been staggering. The values of some of its largest companies, both publicly-traded or solely government-controlled, are equally staggering. But according to a recent study by an independent Chinese think-tank called the Unirule Institute of Economics, China’s economic miracle may not be all its cracked up to be, at least as far as some of its largest companies are concerned.
Massive state-controlled Chinese companies like China National Petroleum Corp., or CNPC; China Petroleum and Chemical Corp. (NYSE: SNP), or Sinopec; Aluminum Corporation of China Ltd. (NYSE: ACH), or Chalco; China Mobile Ltd. (NYSE: CHL); China Telecom Corp. Ltd. (NYSE: CHA); and China United Network Communications Group Co. Ltd. are among the 10 state-owned enterprises (SOEs) that account for 70% of all net profits for SOEs for the years 2001-2008. Just two companies, Sinopec and China Mobile, account for a third of the profits
Tuesday, March 08, 2011
Monday, March 07, 2011
Cart before the horse
The following statement was issued by a local pension fund manager who, like many similar funds, face rising obligations with lower expected returns on investment...quite the conundrum indeed.
But the following by way of solution is not wise at all:
"He also argues that the program actually is lowering its investment risk because diversification into new asset classes reduces the volatility of the fund while augmenting returns. That's based on past performance at the nation's university endowment funds, after which he's patterned his approach, he says."
Diversification does reduce volatility within a portfolio, but does not reduce systemic volatility throughout asset classes like we just experienced. It is also "unclear" wether volatility is related to returns at all. But even if that were true, there is no reason to think a portfolio that removes MORE risk will DEFINITIVELY generate higher returns simply by entering into other asset categories. And I submit the "past performance" from other universities endowment funds will refute these statements. Unfortunately, it sounds as if this official has a misguided faith in the modern portfolio theory of investment("portable alpha" and other such marketing slogans)
But the following by way of solution is not wise at all:
"He also argues that the program actually is lowering its investment risk because diversification into new asset classes reduces the volatility of the fund while augmenting returns. That's based on past performance at the nation's university endowment funds, after which he's patterned his approach, he says."
Diversification does reduce volatility within a portfolio, but does not reduce systemic volatility throughout asset classes like we just experienced. It is also "unclear" wether volatility is related to returns at all. But even if that were true, there is no reason to think a portfolio that removes MORE risk will DEFINITIVELY generate higher returns simply by entering into other asset categories. And I submit the "past performance" from other universities endowment funds will refute these statements. Unfortunately, it sounds as if this official has a misguided faith in the modern portfolio theory of investment("portable alpha" and other such marketing slogans)
Thursday, March 03, 2011
Science Fiction
The only way for a world currency to work is if the entire human race were simultaneously re-wired with entirely different biological impulses and desires.
There has been a bit of hackademic mumblings about the need and feasibility of a world currency, which assumes (once again, this theme is getting quite a run through on this blog lately) the linear progress of society that somehow jettisons any need for competitive policy and realpolitik, and that countries the world over will willingly subordinate their interests without complaint.
How far have the U.N. And other multi-lateral organizations taken us to Utopia?
There has been a bit of hackademic mumblings about the need and feasibility of a world currency, which assumes (once again, this theme is getting quite a run through on this blog lately) the linear progress of society that somehow jettisons any need for competitive policy and realpolitik, and that countries the world over will willingly subordinate their interests without complaint.
How far have the U.N. And other multi-lateral organizations taken us to Utopia?
Wednesday, March 02, 2011
"Risk" adjusted
Be very, very wary of risk measures that focus on historical volatility (or Beta). Bubble formation and explosion is the more beneficial analysis, but it suffers from quantification difficulties, which will forever banish it from academic circles.
Which is alright by me.
Gold for example. Firms falling over each other to design the latest "innovation" that will "track the value of gold" (while still having only a CLAIM to physical gold somewhere).
If one reads the prospectuses from some of these firms, it becomes very clear that the ability to secure your supply of gold during times when its most needed is handicapped.
This is curious. Gold is ostensibly a hedge against social and political unrest. But the purchasers of these gold ETF structures are assuming that the legal infrastructure to secure their contractual rights will somehow remain intact and escape the unrest...and there contains NO RISK PREMIUM for a holder of these ETS to be fairly compensated for the RISK these provisions create.
For example, one large Gold ETF structure contains the language that physical gold will not be provided if "delivery, disposal, or evaluation of gold is not reasonable".
So what is "reasonable"?
Which is alright by me.
Gold for example. Firms falling over each other to design the latest "innovation" that will "track the value of gold" (while still having only a CLAIM to physical gold somewhere).
If one reads the prospectuses from some of these firms, it becomes very clear that the ability to secure your supply of gold during times when its most needed is handicapped.
This is curious. Gold is ostensibly a hedge against social and political unrest. But the purchasers of these gold ETF structures are assuming that the legal infrastructure to secure their contractual rights will somehow remain intact and escape the unrest...and there contains NO RISK PREMIUM for a holder of these ETS to be fairly compensated for the RISK these provisions create.
For example, one large Gold ETF structure contains the language that physical gold will not be provided if "delivery, disposal, or evaluation of gold is not reasonable".
So what is "reasonable"?
Linear connectivity and trade...
...Is an assumption. There is little evidence to suggest the level and rate of change in global trade will continue to be high and increasing, respectively.
The U.S., once again, holds an enormous advantage vis a vi the rest of the world as its net exports as percent of GDP are much lower than most countries.
The world is ensnared. Some of them know it (my suspicions regarding China are increasingly born out by their actions...even when their ude of propaganda and rhetorical devices are approaching event horizon levels of absurdity) some do not, all attempt to derail the engine at their putative risk.
The U.S., once again, holds an enormous advantage vis a vi the rest of the world as its net exports as percent of GDP are much lower than most countries.
The world is ensnared. Some of them know it (my suspicions regarding China are increasingly born out by their actions...even when their ude of propaganda and rhetorical devices are approaching event horizon levels of absurdity) some do not, all attempt to derail the engine at their putative risk.
Cloth or Gavel...
...by which will you be ruled? Edict from on high (suitably communicated through his/her/its chosen vassals - be they Kings or Priests) or through the distilled experience of law and legislation? Both offer compelling systems of order with benefits and limitations.
As the world clamours for various versions of "order" and "freedom", the winners in this process will no doubt be religious plutocracies or a more "conservative" bent. That is, the world will likely be more amenable to rule by "moral" superiors instead of political or economic superiors. They will be "Democracies" in name only...there will be few Republics amongst them.
I have written about this before on this blog, new country formation is obvious. The media is ablaze with the assignment of blame for foreign policy blunders, but rest assured, there will be plenty of opportunity for the Obama administration to absolve itself.
There are trade-offs between religious and secular order. However, the similarities are obvious: a few enjoy privileges undreamed of by the vast majority of subjects, whether or not order is achieved by the cloth or gavel.
Power concentrates, and the mechanism for making law or granting special status is independent of time, place, and position. It is of course no accident that change accelerates during times of economic crisis.
Again, I offer no normative prescription (I lean toward Libertarian thinking, but that also contains a whole host of problems, suffice to say I still maintain the United States sets the best example of society that continually teeters on the brink, but its ability to self-correct has been its lynch pin.), as normative prescription and "design" have done far more harm than good.
As the world clamours for various versions of "order" and "freedom", the winners in this process will no doubt be religious plutocracies or a more "conservative" bent. That is, the world will likely be more amenable to rule by "moral" superiors instead of political or economic superiors. They will be "Democracies" in name only...there will be few Republics amongst them.
I have written about this before on this blog, new country formation is obvious. The media is ablaze with the assignment of blame for foreign policy blunders, but rest assured, there will be plenty of opportunity for the Obama administration to absolve itself.
There are trade-offs between religious and secular order. However, the similarities are obvious: a few enjoy privileges undreamed of by the vast majority of subjects, whether or not order is achieved by the cloth or gavel.
Power concentrates, and the mechanism for making law or granting special status is independent of time, place, and position. It is of course no accident that change accelerates during times of economic crisis.
Again, I offer no normative prescription (I lean toward Libertarian thinking, but that also contains a whole host of problems, suffice to say I still maintain the United States sets the best example of society that continually teeters on the brink, but its ability to self-correct has been its lynch pin.), as normative prescription and "design" have done far more harm than good.
Fed Credibility
Below are several comments from various Fed officials concerning the state of the economy. It is quite clear that the Fed is losing its grip on things and its continued credibility with regard to policy going forward is tenuous at best.
That being said, the Fed could do much worse, regardless if it exhibits any mens rea considering what it believes "best" policy should be...the only thing it needs is control of commodity prices (so it can stop arguing about core deflation and getting tongue tied by its econ-wonk remarks focusing on why rising food and fuel prices are not "real" inflation)
Feb. 25 (Bloomberg) -- Federal Reserve Vice Chairman
Janet Yellen said the central bank could use communications to
make policy more accommodative, lower unemployment and raise the
rate of inflation if financial markets expected a tightening of
policy before the Fed intended.
If policy makers expected the Fed’s target rate to stay
lower for longer “and market participants came to share that
view, then financial conditions would become significantly more
accommodative, even in the absence of any change in the current
level of the funds rate,” Yellen said, according to prepared
text of a speech today in New York.
“Such a shift in policy expectations would be associated
with a lower trajectory for the unemployment rate,” Yellen said
at the University of Chicago Booth School of Business’s annual
U.S. Monetary Policy Forum. The shift would also cause “a
somewhat higher path of core inflation,” Yellen said.
I am very happy I did not attend this speech at my alma mater. The laughter would have sort of spoiled the mood. But I could disarm the audience's opprobrium by simply stating "hey, laughter makes the mood lighter, right? I mean if words alone, uttered by the proper august Fed officials CAN SHIFT BILLIONS OF DOLLARS IN CAPITAL AROUND THE WORLD AND EMPLOY MILLIONS IN THIS COUNTRY PER THIS SPEAKER, then a little laughter can make us all less serious about this topic.
and of course, this headline...
*KOHN: INFLATION TO TAKE `SEVERAL YEARS' TO REACH 2% FOMC TARGET
Which is sort of contradicted by the following print:
-----------------Price Indexes------
Gross domestic purchases 2.1% 2.1%
That being said, the Fed could do much worse, regardless if it exhibits any mens rea considering what it believes "best" policy should be...the only thing it needs is control of commodity prices (so it can stop arguing about core deflation and getting tongue tied by its econ-wonk remarks focusing on why rising food and fuel prices are not "real" inflation)
Feb. 25 (Bloomberg) -- Federal Reserve Vice Chairman
Janet Yellen said the central bank could use communications to
make policy more accommodative, lower unemployment and raise the
rate of inflation if financial markets expected a tightening of
policy before the Fed intended.
If policy makers expected the Fed’s target rate to stay
lower for longer “and market participants came to share that
view, then financial conditions would become significantly more
accommodative, even in the absence of any change in the current
level of the funds rate,” Yellen said, according to prepared
text of a speech today in New York.
“Such a shift in policy expectations would be associated
with a lower trajectory for the unemployment rate,” Yellen said
at the University of Chicago Booth School of Business’s annual
U.S. Monetary Policy Forum. The shift would also cause “a
somewhat higher path of core inflation,” Yellen said.
I am very happy I did not attend this speech at my alma mater. The laughter would have sort of spoiled the mood. But I could disarm the audience's opprobrium by simply stating "hey, laughter makes the mood lighter, right? I mean if words alone, uttered by the proper august Fed officials CAN SHIFT BILLIONS OF DOLLARS IN CAPITAL AROUND THE WORLD AND EMPLOY MILLIONS IN THIS COUNTRY PER THIS SPEAKER, then a little laughter can make us all less serious about this topic.
and of course, this headline...
*KOHN: INFLATION TO TAKE `SEVERAL YEARS' TO REACH 2% FOMC TARGET
Which is sort of contradicted by the following print:
-----------------Price Indexes------
Gross domestic purchases 2.1% 2.1%
Subscribe to:
Posts (Atom)