Tag: China

Is the Administration waking up to the predicament of the U.S. debt load?

Bloomberg relays the epiphany:

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

You don’t say.

Sorry folks, but China is already tired of buying Treasuries. The world economy is slowing drastically, which means the king of exports is feeling the pain too. And they’ve got plenty of their own to take care of.

I’m not sure which is scarier: the thought that China may run out excess capital at some point in the future, and be altogether unable to buy US government debt despite whatever politicking the US throws their way; or that while these bold statements about the ‘unsustainable’ government debt load are being made officials are endorsing the largest budget deficits in history.

Just another case of ‘do as I say, not as I do’? Or prima facie insanity?

Thought walking away from underwater homes was a problem?

In China, folks are walking away from entire factories

LA Times:

First, Tao Shoulong burned his company’s financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And just like that, China’s biggest textile dye operation — with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million — was history.

Some of my fly fishing pals have noticed an increased number of solicitations for the white-label manufacture of rods and reels, mostly from China. The deals seem good compared to equipment prices in the US, but it’s the credit risk I recommend they dig into first.

At one time, dealing with foreign suppliers meant paying in cash or securing letters of credit – the overseas entity was uncomfortable with US bankruptcy laws and wouldn’t ship product without some protection. You still have to do business this way, only now you have to worry that the supplier will simply take your money and run.

I’d be wary of doing business on pay-in-advance terms with anyone right now (and particularly so if they are ten thousand plus miles away). If that’s the only way to get samples, ask if they have a domestic distribution point first and/or request some references. Don’t come out of the gate with custom orders either – specifically request sample stock or factory seconds.

And no matter the initial order size, always keep your fingers crossed. (h/t Calculated Risk)

SIDE NOTE: CR noted that Chinese contraction could result in higher intermediate/long term interest rates in the US, but called the notion “speculative.” I believe the concept is anything but speculative – shrinking capital flow into US Treasuries is impending reality. And “decoupling” isn’t really dead at all – instead it has changed stripes, with the Fed Funds target about to decouple from actual rates.

BRIC throwing should be an Olympic event

The market news piece of the day is that the S&P 500 has (YTD) outperformed the once explosive BRICs (Brazil, Russia, India and China). Folks everywhere are saying “See, it’s not so bad” and touting the fact that the U.S. is the “least loser” etc. etc. I don’t think that is the real story here.

As the Washington Post notes, the Olympics may be fantastically well choreographed, but it doesn’t really matter if nobody shows up:

Two weeks after announcing they had sold every one of the record 6.8 million tickets offered for the Games, Olympics officials expressed dismay at the large numbers of empty seats at nearly every event and the lack of pedestrian traffic throughout the park, the 2,800-acre centerpiece of the competition.

The Chinese organizing contingent is “baffled” by this? They’ve got to be kidding – look at their stock market…

brics-performance-vs-sp-500
Chart compliments of Bloomberg

Just a few months ago, the Chinese were trying to stem the bleeding by promoting more equity market speculation. From the looks of the chart, that didn’t get them very far.

Clue: When equity markets tumble, people lose money. When they lose money, they stay in. And (I guess) order Chinese food.

When your market tumbles, promote speculation with leverage!

Sad but true

The Chinese equities market has not been performing well. But regulators and market makers have the answer.

According to Bloomberg:

China may limit new share sales and allow investors to borrow money to buy equities in an effort to boost the world’s sixth worst-performing stock market…

They are going to restrict the ability of Chinese companies to do secondary financing, thereby reducing the supply of stock, while allowing those buying the stock (i.e. the speculators who have been taking a bath as of late) to borrow money to buy. The market goes back up, but the underlying issue companies starve for new capital. And sooner or later the speculators have to pay back all those margin loans.

It’s extremely short-term thinking. The Chinese are going to have to hope and pray that the market stays up long enough for companies to get the impending backlog of issues out the door. Those same companies will likely be borrowing like mad in the meantime. The only identifiably consistent concept here? Everyone is going to be deeper in debt.

If the Chinese government would just step in and loan money directly to the pummeled shareholders to prop up their brokerage accounts, you might just have the U.S. housing market.

The $1.4 Trillion Question

An excellent primer for the curious.

James Fallow deserves kudos for this fascinating article on economic relations between China and the United States.

End of year filings

Read tomorrow when you’re nursing your hangover – it’ll certainly make more sense then.

Filed under Do As I Say, Not As I Do:

  • Security warning! A flaw in WordPress could expose your draft posts. This news bulletin was originally brought to you via WordPress-driven social networking blog Mashable, but has since disappeared. This blog runs on WordPress too, and this post will be deleted in roughly 24 hours.
  • Filed under The Lord Works In Mysterious Ways:

  • Jeff Jarvis, one of the few high profile bloggers I’ve seen that actually mentions something about their religious affiliation online, says “Google is God.” Meanwhile, the only ad on Buzz Machine is delivered by Google, and the displayed inventory is an attack ad by Compete against Alexa.
  • Filed under The Bigger They Are, The Harder They Fall:

  • I was working on a joint venture deal in China, with a pre-negotiated price. Each time I checked with the accountants working through the due diligence the assets got smaller and the liabilities larger. Seems the theme runs throughout the Chinese economy. Of course, you could also surmise the same about the US economy and the housing market it’s been so entirely dependent on.
  • Filed under More Than You Bargained For:

  • Everyone wanted an iPod for Christmas (again). Some folks got cryptic notes espousing anti-capitalism instead.
  • and…

    Filed under That Overpriced Conditioner Won’t Help:

  • Sweetheart…knots are natural!
  • China to Decide Agricultural Bank Restructure ‘Soon’

    Western banks aren’t the only ones:

    Agricultural Bank of China, saddled with $100 billion of bad loans, may receive regulatory approval for its restructuring plan “soon”, a sign the government is nearing completion of a decade-long industry cleanup.

    A hundred billion in bad debts would sink many US financial institutions. But in China “restructuring” means the Industrial Bank and the Communications bank owe the Agricultural Bank the money, and the lender will just take more equity instead.

    Looking for good rankings in the global economy

    You can’t believe much of what the mainstream media says, and you certainly can’t believe much of what the Chinese government says. So when the Chinese government reports, through their media, that their their economy is even larger than originally thought, you have to wonder. They beat out Italy for sixth place (not that that is any great shakes), and I suspect the announcment is just for PR (pun intended). According to the report, the Chinese economy is double the size because they forgot to include their “service” economy.

    The US used to say we were transitioning to a service economy, but all that meant was we weren’t exporting as much as we used to, and they needed some plug to keep the GNP figures looking pretty. Then our savings rate hit the skids – we wind up mired in debt at all levels – all to pay for those double skim lattes.

    The Chinese better be careful what they wish (and pitch) for.

    The military, or the militant

    Alan Paller, director of the SANS Insitute, says the Chinese military is responsible for hacking of US government and related industry networks.
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    Being cautious during the China rage

    Investing in China is all the rage nowadays.

    I was over there in 1994 working on a joint venture investment deal, and thought things were done more than a bit funny. During due diligence for the JV heavy manufacturing operation, it seems the further we dug the less assets existed. And the liabilities went in the opposite direction. I never got a straight answer out of anybody, but one thing was for certain: the investment from the US side wasn’t going to change no matter what deficiencies we found on their end – the Chinese management made that very clear up front.

    I am sure things have changed a bunch since then, or have they?
    (more…)