Tuesday, April 26, 2011
Sunday, April 24, 2011
According to the March 30th Case-Shiller Index, the mid-tier price for a single family residence in Los Angeles/Orange County area ranged from $305,699 to $500,519. According to the April 17th New York Times, the average selling price of a condominium in central Shanghai, China is over $500,000 (25 times the average earnings of a Shanghai resident). Somebody in China is making money! And economic growth in the Peoples Republic is a searing 9.7% per annum right now, far and away the biggest number among the globe's major economies. Kind of challenges your notion of poor Chinese peasants working for chump change, although there are hundreds of millions of people who fit that description more than the PRC would like to admit.
The story, of course, is what that overheated growth rate is doing to China and the world and what China feels about it. We can start with the latter concern and note that China's leadership sees inflation sending prices soaring, as the above housing statistic for Shanghai clearly indicates. Gasoline prices are up from $3.82/gallon in 2009 to $4.50 today. Their consumer price index has risen 5.4%, the biggest increase three years. Authorities are trying to push down the free flow of cash, a driver of inflation, by upping the amount of capital reserves that must be maintained by the nation's banks (to just over 20% of their cash holdings). The government is also trying to dictate the prices on some basic consumer commodities, while upping its agricultural subsidies to stabilize food costs.
Inflation is generally a bi-product of over-borrowing (leveraging), which in China has plagued both the local municipal and private construction marketplace because of loose lending practices, and until recently, relatively low down payments for real estate with concomitant higher borrowings to support development and purchase of commercial and residential structures. Private and municipal real estate-related debts have been exploding. The fear, of course, is that China would face the same kind of bubble that sank the real estate market in Europe and the United States, and that the relevant banks would find their balance sheets trashed as a result.
While China's massive cash reserves might protect that country from having to incur massive deficit borrowings, that use of her cash reserves would have to be pull from other needed development, particularly infrastructure, education and environmental concerns. Likewise, China would have a lot less money to spend on imports, which would be quite a body-slam to economies counting on selling their wares to and in the PRC.
Moving away from China's once lowly 1.8% annualized inflation to north of 5% per year would also have the effect of increasing prices for Chinese exports, and for people who now rely on such Chinese products and services, these cost increases would represent another body-slam to the trade imbalance between China and the West: That means Americans, Europeans and other buyers will have to pay more for those goods or seek lower-cost suppliers elsewhere. In some cases, retailers are bidding for goods at prices the exporters consider too low. I hear that many Chinese exporters are rejecting orders from Wal-Mart and other Western retailers, Dong Tao, an economist at Credit Suisse in Hong Kong said. "I've been covering the Chinese economy for a long time, and I've never heard that before". NY Times. China's leadership, acting without a central banking institution like the European Union's Central Bank or America's Federal Reserve, will probably continue to require greater capital reserves and increase interest rates, but the near-term prognosis is that China needs to do a whole lot more to get these price trends under control. If they don't, prepare to pay more and live with less.
I'm Peter Dekom, and no matter what we do with our economy, we are always impacted by other economies "over there".
Thursday, April 21, 2011
Monday, April 18, 2011
I always wondered why we sing the Star Spangled Banner before every major league sporting event in the U.S.; why are sports and patriotism were so inexorably linked? Matt Soniak, writing for Mentalfloss.com, provides this simple historical explanation: “After America’s entrance into World War I, Major League Baseball games often featured patriotic rituals, such as players marching in formation during pregame military drills and bands playing patriotic songs. During the seventh-inning stretch of game one of the 1918 World Series, the band erupted into ‘The Star-Spangled Banner.’ The Cubs and Red Sox players faced the centerfield flag pole and stood at attention. The crowd, already on their feet, began to sing along and applauded at the end of the song.
“Given the positive reaction, the band played the song during the next two games, and when the Series moved to Boston, the Red Sox owner brought in a band and had the song played before the start of each remaining contest. After the war (and after the song was made the national anthem by a congressional resolution in 1931), the song continued to be played, but only on special occasions like opening day, national holidays and World Series games... During World War II, baseball games again became venues for large-scale displays of patriotism, and technological advances in public address systems allowed songs to be played without a band. ‘The Star-Spangled Banner’ was played before games throughout the course of the war, and by the time the war was over, the pregame singing of the national anthem had become cemented as a baseball ritual, after which it spread to other sports.”
Well, when Canadian teams in leagues like the National Basketball Association, the National Hockey League or Major League Baseball play their U.S. counterparts, “O Canada” is routinely played with the Star Spangled Banner… on both sides of the border. In fact, “[t]he NHL requires arenas to perform both the Canadian and American national anthems at games that involve teams from both countries. One American team, the Buffalo Sabres, goes a step further and performs both anthems before every game, a nod to Buffalo's location near the Canadian border and the team's substantial number of Canadian fans.” Wikipedia.
So what is the proper etiquette for those in attendance when the anthem is performed? “United States Code, 36 U.S.C. § 301, states that during a rendition of the national anthem, when the flag is displayed, all present except those in uniform should stand at attention facing the flag with the right hand over the heart; Members of the Armed Forces and veterans who are present and not in uniform may render the military salute; men not in uniform should remove their headdress with their right hand and hold the headdress at the left shoulder, the hand being over the heart; and individuals in uniform should give the military salute at the first note of the anthem and maintain that position until the last note; and when the flag is not displayed, all present should face toward the music and act in the same manner they would if the flag were displayed. Military law requires all vehicles on the installation to stop when the song is played and all individuals outside to stand at attention and face the direction of the music and either salute, in uniform, or place the right hand over the heart, if out of uniform. Recently enacted law in 2008 allows military veterans to salute out of uniform, as well.” Wikipedia. No eating, and if you are walking, stop and assume the position… but there is no penalty for non-compliance.
I’m Peter Dekom, and it’s all so complicated!