Archive for the ‘China’ Category
On September 22, 2007, I said in Bye bye dollar (emphasis added)
I wasn’t particularly excited about the surprise 50 bps cut in both target and discount rates for the general long-term prospects of the US economy, although on a selfish level it was certainly good for my career stability. As far as I’m concerned, it is open season for Bernanke bashing. Greenspan bashing has been accelerating as well. Besides, if things really get bad with the USD, we’ll just move to Hong Kong or something
One of the things that I learned from Al Wojnilower was that the US economy could certainly keep chugging along for as long as the USD was the world currency. As he liked to repeat often, having the USD as the dominant world currency is like having an “American Express card with no limit”. One of the things that keeps the USD as the world’s currency is its position in sovereign reserves as well as the fact that oil is priced in USD. As far as I can see, both of these factors are beginning a worrisome decline.
With sovereign reserves continuing to diversify away from USD and Saudi Arabia refusing to cut rates in lock step with the US marks a real turn in the outlook for the USD dollar, and consequently the ability of the US economy to continue chugging along.
Then on October 31, 2007, I said in Xie xie ni Bernanke (emphasis added)
I just wanted to take a moment to say thank you to Mr Bernanke and the FOMC. I work in finance and these rate cuts are really great for my career sustainability. Without you’re gifts to the markets (at the expense of the USD, the long-term US economic health, and those who were responsible enough to actually save money instead of gambling), I don’t know what I’d do. I’m just glad that when this irresponsible monetary policy finally catches up to you that I have the option to move to Hong Kong.
With that backdrop, I am extremely excited to announce that I begin my new job in Hong Kong on November 23!
The move is both personal and strategic. Mrs Phorgy is from HK and we have a very large extended family there. Also, the asset management firm I’m working for is based in China. This is by far the most excited I’ve ever been about a new career opportunity. The people I’ll work with are phenomenally smart and lean towards being more quantitative (many with PhDs). For example, the PhD advisor of one of the guys who interviewed me was Nobel laureate Robert Engle.
The asset management industry in China is growing at a phenomenal pace and I am truly excited to be a part of that. As far as why a move to HK if I am concerned about the USD? I suspect in five years, it will seem far less mysterious as it becomes increasingly difficult and unpopular for HK to maintain its peg to the USD. Asia is definitely moving to an “Asian Bloc” and when that happens, the need and desire to peg the HKD to the USD will fade away.
The next 10-20 years will be transformative and I’m glad my daughter will grow up speaking both English and Mandarin. Speaking of which, it has been too long. Here is my princess:
From what I saw on my trip to China, it is obvious the reverse brain drain is well under way. Zai jian Bernanke!
Financial Armageddon points to the Reuters article:
where he argues that deflation is the next big worry. I have to humbly disagree. Sort of.
I do agree that financial asset prices are due for a massive correction, but the economy is made of more than just financial assets. Financial assets will see deflation, but physical assets will see inflation.
During the “New Economy”, financial assets have soared in value and I believe, like Jeremy Grantham, that financial assets throughout the globe have experienced a bubble.
Like I’ve said in a comment or two on Panzner’s blog, during past corrections in the financial sector, China and India were absorbing inflationary pressures. That structural shift is what will make this time different. Today, China and India are net exporters of inflation and loose monetary policy in the US will create domestic inflationary pressures that have no where to go this time.
This is the rift I saw between physical and financial assets when David Richards asked me what I thought about the markets back in December of 2006. That rift has been partially corrected with the rise in commodity and energy prices since then, but I think there is a long way to go before things are neutral. As usual, things usually will not reach a nice equilibrium and stay there. Inertia will carry it through neutral and beyond. Significantly beyond.
A new Pew internet survey came out today showing that internet users in China have grown in numbers to the point they are second only to the US and will surpass the US in a few years.
The US economy is at risk for lots of reasons these days and one reason that is probably under the radar, but will creep up in the next few years is our horrid internet service. The US has fallen far behind most developed (and some less developed) countries in terms of broadband availability. When I say “broadband” I mean broadband. Not the measly < 1 Mbps that most of us get with DSL or cable, but the more reasonable 50+ Mbps that is common in Korea, Japan, and parts of Europe.