The Evolution of the Chinese Ecnomy

By now you’ve probably read the NY Times article by David Leonhardt titled Can the Chinese Become Big Spenders? It is a very lengthy piece that among other things seems to chronicle what seems like a peculiarly rapid evolution of the Chinese economy. Here’s a good quote to start with; To continue growing rapidly, China needs to make the next transition, from sweatshop economy to innovation economy. This transition is the one that has often proved difficult elsewhere. Once a country has turned itself into an export factory, it cannot keep growing by repeating the exercise. It can’t move a worker from an inefficient farm to a modern factory more than once. It cannot even retain its industrial might forever. China makes a lot of stuff the world (including the US in a big way) needs or wants. Cheap labor has been one facet of the China story and prosperity is leading to higher wages which contributes to the improved living conditions. At some point the cheap labor may not be that cheap anymore and this sort of manufacturing will move to other countries like Vietnam. The article cites various stats about the lack of innovation, mostly technologically oriented, in China compared to the US (think piracy of intellectual property) although there was no mention of Huawei (at least I don’t think so, it was a long article). It is not clear to me that innovation is quite the linchpin the article makes out, at least not yet as it seems like China can really sell efficiency for many years to come. Of course at some point there is...

The Evolution of the Chinese Ecnomy

By now you’ve probably read the NY Times article by David Leonhardt titled Can the Chinese Become Big Spenders? It is a very lengthy piece that among other things seems to chronicle what seems like a peculiarly rapid evolution of the Chinese economy. Here’s a good quote to start with; To continue growing rapidly, China needs to make the next transition, from sweatshop economy to innovation economy. This transition is the one that has often proved difficult elsewhere. Once a country has turned itself into an export factory, it cannot keep growing by repeating the exercise. It can’t move a worker from an inefficient farm to a modern factory more than once. It cannot even retain its industrial might forever. China makes a lot of stuff the world (including the US in a big way) needs or wants. Cheap labor has been one facet of the China story and prosperity is leading to higher wages which contributes to the improved living conditions. At some point the cheap labor may not be that cheap anymore and this sort of manufacturing will move to other countries like Vietnam. The article cites various stats about the lack of innovation, mostly technologically oriented, in China compared to the US (think piracy of intellectual property) although there was no mention of Huawei (at least I don’t think so, it was a long article). It is not clear to me that innovation is quite the linchpin the article makes out, at least not yet as it seems like China can really sell efficiency for many years to come. Of course at some point there is...

Sunday Morning Coffee

This week’s Barron’s featured a three article Retirement Special Report. One of the articles was on long term care insurance, one was on an idea for a new type of TIPS and the third offered ideas about where to capture yield. Many people seem to be skeptical about all forms of insurance as am I and health care costs are extremely controversial for all sorts of reasons but these are issues that most of us do have to grapple with (if you have millions in the bank you can cope financially with a $500,000 illness). Bruce Krasting recently noted that his insurance premium was going up 25% at an annualized rate from a little over $1600 per month which is obviously a very big dollar amount these days although some folks do have a higher premium. The Barron’s article notes the costs of long term care policies going up and also because of the dynamics of the industry that some companies are getting out of the business. Long term care is tricky because it is a type of insurance you may never need but according to the article only 2/3 of seniors will need long term care at some point in their lives. Personally I am motivated to be one of the other third and hope a combination of lucky genetics (my parents are 84 and 79 and have not needed this) and a lot of vigorous exercise will do the trick. We have no control over our genes (yet?) but we can commit to exercising regularly and while I’m at it eliminating soda from our diets. The article...

Sunday Morning Coffee

This week’s Barron’s featured a three article Retirement Special Report. One of the articles was on long term care insurance, one was on an idea for a new type of TIPS and the third offered ideas about where to capture yield. Many people seem to be skeptical about all forms of insurance as am I and health care costs are extremely controversial for all sorts of reasons but these are issues that most of us do have to grapple with (if you have millions in the bank you can cope financially with a $500,000 illness). Bruce Krasting recently noted that his insurance premium was going up 25% at an annualized rate from a little over $1600 per month which is obviously a very big dollar amount these days although some folks do have a higher premium. The Barron’s article notes the costs of long term care policies going up and also because of the dynamics of the industry that some companies are getting out of the business. Long term care is tricky because it is a type of insurance you may never need but according to the article only 2/3 of seniors will need long term care at some point in their lives. Personally I am motivated to be one of the other third and hope a combination of lucky genetics (my parents are 84 and 79 and have not needed this) and a lot of vigorous exercise will do the trick. We have no control over our genes (yet?) but we can commit to exercising regularly and while I’m at it eliminating soda from our diets. The article...

The Big Picture for the Week of November 28, 2010

Pragmatic Capitalism reposted a list of ten reasons why US banks are better to buy than European banks which was originated at Credit Suisse. You should click through to read the list. The logic of the list might be completely correct drawing the correct conclusion; US banks may indeed be better to buy than European banks. That said, they could both stink and be undeserving of your investment dollars. If you have been reading this site for a while you know that this has been my opinion for a long time now; they both stink and that one group might collectively stink less is not much of a hook for me. The notion of sovereign contagion should be plausible from Asia 12 years ago and what has happened thus far in Europe. Of course there might not be any further dominoes to fall which leaves banks that operate in markets facing declining real estate prices, over indebted consumers, lousy demographics and weak (at best) growth prospects. From where I sit it doesn’t look much different for the US banks in terms of where we are right now and what appears to lie ahead fundamentally, even if there are many trading opportunities along the way. I was able to find three financial sector ETFs that exclude the US and Europe (if there are others please leave a comment as it would be easy to overlook something given how many funds there are). There is the iShares Far East Financial Fund (FEFN) which is 59% Japan. There is the iShares Emerging Markets Financial Fund (EMFN) which is promising but has 28%...