Try to post one from my mobile...

Wow...

What did Nokia say huh?

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Super Deflation vs Inflation --Weekly Z Turn

Super Deflation vs Inflation --Weekly Z Turn  (28/02/2009)

1.      The best way to view this crisis.

The best perspective to view the current crisis that we are in was provided by my highly respected strategist on the street, Mr. Christopher Wood. He had it this way on few of his weekly write up, Greed & Fear saying we are now in a crisis, for the western developed economies, having both structural problems accompanied by the synchronized cyclical downturn in the real underlying economy.

So, given that as the real way to look into this problem, we should definitely try to get the solution accordingly rather than either mixing them two together or dealing one without caring the other.

Most of the traditional policies, both monetary and fiscal ones, were to a large extent targeting the cyclical downturn since we, in reality, did not have many examples of a structural crisis, especially one of this type and this severity, in our history. Therefore, when policy makers woke up and started to jump right into the mess to try to look for the best weapons out of their toolkit, they unavoidably re-got together at the end of a same tunnel called Keynes and Mr. Greenspan, albeit for some stubborn teammates like ECB, who is still way behind the club and is still wondering whether or not to get a catch up. Yes, unfortunately and sadly, still…

Therefore, my argument is, no matter what kind of the efforts that they are trying to make. Until the moment that they could correctly identify the origins of this mess and focus on each aspect of the cube accordingly, it would be difficult for us, and for them as well to see the light at the end of the tunnel. While we can never rule out the worst-case scenario, in which we prolonged the crisis by not giving the patient the right medicine. 

How can you make a prescription to cure one without at first, properly identify one?

2. China in a possibility of super deflation

One of the saddest things that our human being have to be faced is that, a coin is always going to have 2 sides. While enjoy all the goods on one side, you have to admit that, more and less, earlier or later, you are going to pay for the price of it. The Great Globalization, is also the case.

Before this global party, for a country that is in a economy downturn to stimulate its economy, one of the methods that is usually helpful and quite effective according to the statistic is currency depreciation, in a way of which to make its exporting goods and service relatively cheaper to attract purchase abroad, to compensate its weak domestic demand. However since we were enjoying the best cake out of the moon for the past few years, when Chinese acted as a vendor financing party and producer for people in the States to borrowed at a cheap rate to consume, the world has been linked together in a way that we had never experienced before. As a result of that, when we walked into this crisis, it can probably be safe to assume that, since this mess is going to be a synchronized and simultaneous one, it will not be easily solved by simply a depreciation in the currency since the point now is not the relative price between different countries but the real retrench in the final demand, that has been artificially high for the past few years. 

That being said, we can also safely assume that in the emerging Asia we are definitely facing a less concerning structural difficulty in the balance sheet of both private and public sectors compared with our western counterparts; However, it would probably be ambitious for us to claim that we could have less impact, slightly bigger in my humble opinion, because of the collateral damage from the west. In a word, it is such a self-deception to call for the idea of "De-couple". Simply put, for the consumption side to stop spending and to start saving, it would be as easy as a click; While for the producing side to adjust it business scale, the process would be both painful and long. Take mining sector to be an easy example, for a mining company to adjust it production, even for a normal business cycle, it would probably take 7 years to start from none to make its supply fast enough to catch up on the uptrend of the economy (Number from BHP). 

With that being said, i am calling China, even for the long term to be more deflationary rather than inflationary as many believe, given the size of its infrastructure investment and other related stimulus investment package. Personally speaking, they would contribute more to the deflation side, simply because the more you're spending on those now, the more the over-capacity it will become if the transition from exporting oriented business model to a domestic consumption driven does not succeed. And as always, I am super bearish on the probability of how domestic consumption driven economy that we can become in the foreseeable future without a change in the constitution of China.

In one word, we are now apparently trying to stimulate our economy in the short run; but in reality, I am afraid we are just building an economy of more capacity in the long run...

 

Finally Settled... Again, still with Google

Have my ass hard to look for a good place to settle my blog, but failed.

Was trying to use blogger before for a while, however was unsuccessful since it is not permitted in mainland at that time.

Windows MSN Space? Really sux.

After Olympic, was told there is a few relaxation in terms of the internet policy. Examples are you can view Wiki, and blogger in China now.

Wow, thanks Olympics 2008 btw.

So here we go, let's move guys!