Inflation, the Economics of Traffic Accidents

if you think governments are understating inflation, you are probably right. read below excerpts of a newsletter by John Mauldin

quote

The government and central banks also contribute to higher inflation by pretending inflation is always under control. For example, throughout the Greenspan and Bernanke years, the Fed consistently chose to focus on lower inflation measures whenever doing so suited the central bank. You can see this in the semiannual monetary policy reports to Congress, specifically in the inflation forecasts made by the members of the Federal Open Market Committee. Until July 1988, inflation forecasts used the implicit deflator of the gross national product, but then the Fed switched to the Consumer Price Index. In February 2000, the Fed replaced CPI with the personal consumption expenditures (PCE) deflator. Thus from July 2004 onward, inflation forecasts have employed the core PCE deflator that excludes food and energy prices. Using lower and lower, less comprehensive estimates for inflation has allowed the Fed to pretend that it is meeting its mandate – but by ignoring high in flation readings. In the meantime, interest rates have been kept too low, and the inflation rate has consistently remained above the Federal Funds rate.

But measuring inflation is not so easy. The vast majority of readers have no idea about the rather contentious nature of the debates that go on in academic conferences about arcane topics such as the minutiae of how to measure some minor aspect of inflation. Passions run deep. Careers are made. Once you delve into how things are actually done, you realize that what we think of as an inflation number is actually an approximation of an idea the very definition of which can change over time.

Your perception of inflation (and everyone else's) has a very close relationship to how stock markets perform over time. Indeed, one of the questions we are both regularly asked wherever we speak is something along the lines of "What do you think inflation or deflation will be?" And the answer is not easy: it depends on a number of factors that vary from country to country.

In general, the trend for the last 75 years has been one of inflation. Sometimes, in some countries, inflation has spun out of control. At other times you see outright deflation. Neither one promises good times for investors. Ever-falling inflation or low inflation is the best environment for investing. But given the paramount importance of the inflation/deflation debate, we need to briefly investigate what inflation is and is not.

There has been a great deal written about the difficulty of measuring inflation and about the potential manipulation of inflation statistics over the last 30 years. John Williams of ShadowStats is the most-noted proponent of the position that inflation is running well above the current US government's number of 2% (for the 12 months ending February 2013).

Employing the methodology that was used in 1980 under the Carter administration, inflation would currently be about 9.6% (see chart below). Using the government methodology from 1990, inflation today turns out to be a little under 6%.

unquote

i have a strange theory on the economics of traffic accidents - they occur more frequently or more seriously when the economy is in recession, why? 

because people are under stress in their daily life, so they are more likely to commit errors when driving a vehicle, a vessel, a train or an aircraft. we have seen serious accidents since the 2008 recession, a cruise vessel capsized near Italy, a train smashed just recently in Spain, another - a Korean aircraft crashed in San Francisco.

well, after all, theory has to be proved by empirical evidence which is hard to come by unless someone is doing research work on the subject who then has the money and time to plough through the statistics in various countries and compare recession eras with good times.

HSI new trend

click for better picture

if the fallout from the rising trend can recover and zoom above 23500 for about three weeks, then buy on every index set back of 1% or more.

this weekly chart indicates a strong market ahead if the above conditions are fulfilled. or those who have the stomach to cut losses can jump in now.

should you be good at picking stocks [try pick index stocks that already outperformed the index, hsbc is one of them] then you wont need to buy into an index stock like 823.

A winddown of debt buying, are you kidding?

many readers are heeding warnings that the recovery is well underway in the us, so we should be careful, i have always challenged that idea as us is too deep in debt to be able to reverse course in their debt buying.

note article from wsj which gives you an in depth knowledge of what's going on in the employment market instead of just headline numbers.

Mort Zuckerman: A Jobless Recovery Is a Phony Recovery

In recent months, Americans have heard reports out of Washington and in the media that the economy is looking up—that recovery from the Great Recession is gathering steam. If only it were true. The longest and worst recession since the end of World War II has been marked by the weakest recovery from any U.S. recession in that same period.

The jobless nature of the recovery is particularly unsettling. In June, the government's Household Survey reported that since the start of the year, the number of people with jobs increased by 753,000—but there are jobs and then there are "jobs." No fewer than 557,000 of these positions were only part-time. The survey also reported that in June full-time jobs declined by 240,000, while part-time jobs soared by 360,000 and have now reached an all-time high of 28,059,000—three million more part-time positions than when the recession began at the end of 2007. 

That's just for starters. The survey includes part-time workers who want full-time work but can't get it, as well as those who want to work but have stopped looking. That puts the real unemployment rate for June at 14.3%, up from 13.8% in May. 

The 7.6% unemployment figure so common in headlines these days is utterly misleading. An estimated 22 million Americans are unemployed or underemployed; they are virtually invisible and mostly excluded from unemployment calculations that garner headlines.

At this stage of an expansion you would expect the number of part-time jobs to be declining, as companies would be doing more full-time hiring. Not this time. In the long misery of this post-recession period, we have an extraordinary situation: Americans by the millions are in part-time work because there are no other employment opportunities as businesses increase their reliance on independent contractors and part-time, temporary and seasonal employees. 

Even the federal government payroll is turning to part-timers: In June 2012, 58,000 federal workers were part-timers. This year it's 148,000, and we still don't know how the budget sequester will play out, for many agencies have resorted to furloughs rather than layoffs.

The latest unemployment report was as underwhelming as the Household Survey. The biggest gains in June came from leisure and hospitality industries, including hotels and fast-food restaurants. Of the 195,000 new payroll jobs, 75,000 were in restaurants and bars, where the average weekly paycheck is about $351, less than half the average for all other private industries. Not to mention that these positions offer fewer hours, especially in the restaurant world, which has averaged 26.1 hours per week versus 34.5 hours for all private employers.

What's going on? The fundamentals surely reflect the feebleness of the macroeconomic recovery that began roughly four years ago, as seen in an average gross domestic product growth rate annualized over the past 15 quarters at a miserable 2%. That's the weakest GDP growth since World War II. Over a similar period in previous recessions, growth averaged 4.1%. During the fourth quarter of 2012 and the first quarter of 2013, the GDP growth rate dropped below 2%. This anemic growth is all we have to show for the greatest fiscal and monetary stimuli in 75 years, with fiscal deficits of over 10% of GDP for four consecutive years. The misery is not going to end soon.

ObamaCare is partially to blame. The health-insurance law requires employers with more than 50 workers to provide health insurance or pay a $2,000 penalty per worker. Under the law, a full-time job is defined as 30 hours a week, so businesses, especially smaller ones, have an incentive to bring on more part-time workers. 

Little wonder that earlier this month the Obama administration announced it is postponing the employer mandate until 2015, undoubtedly to see if the delay will encourage more full-time hiring. But thousands of small businesses have been capping employment at 30 hours and not hiring more than 50 full-timers, and the businesses are unlikely to suddenly change that approach just because they received a 12-month reprieve.

These businesses' hesitation to hire is part of a larger caution among employers unsure about the direction of government policy—and which has helped contribute to chronic long-term unemployment that shows no sign of easing. Unlike those who lose a job and then find another one in a matter of weeks or months, fully a third of the currently unemployed have been out of work for more than six months. As they remain out of the workforce, their skills deteriorating, the likelihood rises that they will be seen as permanently unemployable. With each passing month of bleak job news, the possibility increases of a structural unemployment problem in the U.S. such as Europe experienced in the 1980s.

That brings us to a stunning fact about the jobless recovery: The measure of those adults who can work and have jobs, known as the civilian workforce-participation rate, is currently 63.5%—a drop of 2.2% since the recession ended. Such a decline amid a supposedly expanding economy has never happened after previous recessions. Another statistic that underscores why this is such a dysfunctional labor market is that the number of people leaving the workforce during this economic recovery has actually outpaced the number of people finding a new job by a factor of nearly three.

What the country clearly needs are policies that will encourage the modernization of America's capital stock, where investment in modern production has plunged to the lowest levels in decades. Policies should also be targeted to nourish high-tech industries, which will in turn inspire the design and manufacture of products in the U.S. where they would be closer to the American market, spurring more hiring. This means preparing a skilled workforce, especially engineers suitable to work in manufacturing, and increasing the number of visas available to foreign graduate students in the hard sciences—who are now forced to leave America and who then work for foreign competitors. 

Similarly, patent-application processing must be streamlined: The U.S. Patent and Trademark Office should be a channel for innovation, but instead has for too long been and an impediment to the swift introduction of new ideas. Finally, the country should engage in a major infrastructure program to improve airports as America once did for railroads and highways. Air cargo and air travel are linchpins of the economy, yet air-traffic-control technology is stuck in the last century.

It is imperative that the U.S. focus on innovative and creative policies. Otherwise, the five-year crisis in employment will continue even when the economy seems to be recovering. Without such a focus, millions of American families whose breadwinners are unemployed or underemployed will remain dispiriting and apprehensive about the future, especially the young who are entering the workforce. The country needs a real recovery, not a phony one.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

Economics anomaly, Croatia, Costs of a Rally

Economics Anomaly
Over the past week, we have seen usd rally sharply and the usd index is hitting new highs in its recent past. well when usd goes higher, you will usually see a number of changes like lower gold prices, lower commodity prices in general, lower crude prices too. but lower crude prices didnt happen and have rallied in the same direction of the usd.

back in 2007, we have seen crude [futures] prices rally from 120 to 147 while the spot prices are much lower, in fact the surplus is so severe that the buyers cannot store their crude onshore, they have to rent tankers to store them. tankers storage are much more expensive than onshore storage which eventually lead to a sharp fall of the futures prices of crude as more buyers take delivery in spot month, they have to sell them in order not to spend money storing them since many of the buyers are not genuine buyers but speculators.

so what is happening here? are we seeing a repeat of things happening?

there are two possibilities

• a sharply lower usd or
• sharply lower crude prices [read this blog - 'stock markets' in may]

which will soon unfold, no matter which direction, the impact will be explosive, so sit tight.

Croatia
this is a country you and i may have heard of, a famous tennis player is from here, but don't know much of its history or economics of it, but one thing you need to know is it is joining EU or it has joined EU in the past few days. amid all the problems EU is facing, it is hard to believe that any country would want to join it now, not in its hey days but when its economy has fallen on hard rocks.

we have a chinese saying that when everything is not smooth in the family or when parents or grand parents are seriously ill, then a marriage is arranged for the son/daughter, grandson to stir up fortune or good luck [ 沖喜 ], maybe EU officials have this in mind.

Costs of a Rally
hk has so many demonstrations/rallies that it has been named the city of rallies.
many believe that rallies are so common in hk is because many protesters are outsourced, if this is true then what is the costs of a rally?

on 1 july, it is estimated 100,000 have participated in the usual handover day rally. assuming half is outsourced and you pay 300-500 for a protester, then the costs is 15-25m hk dollars. you need deep pockets to do that.

China Bubble about to burst

a newsletter forecasting china collapse, believe it or not.

Special Report

The China Bubble is About to Burst

China has the world's largest population and second largest economy.
In the last few years, it's seen an outstanding economic growth rate, averaging 9 to 10%.
The fact that China is now the worlds largest trading country makes this pretty significant.
But in the second half of 2012, this fell short... Growth was 7.6%, a three-year low.
Another red flag appeared towards the end of the summer when the Purchasing Managers' Index, which measures manufacturing activity, fell to a nine-month low — dropping from 53.1 to 52.0. The 50-point mark separates expansion from contraction, and though China's number was still above that line, it was hovering dangerously close.
One thing after another has had analysts turning a suspicious eye to China, a quickly-developing nation that, until now, had inspiring economic growth. And one after another, these analysts are all asking the same question: Is China's economy on the brink of decline?
Analysts suspect economic growth this year will fall between 7.5% and 8.0%, but policy issues could push this down even lower — maybe even to 7.0%.
The rapid economic growth has built up bubble after bubble, climbing a steep slope to the peak...
Now it looks like there's nowhere to go but down.
Corruption at the Top
Government corruption has been the link behind all of the slowing sectors in China. High-ranking officials and their self-interest have perpetuated the economic bubbles and pushed many sectors to the current point of instability. And it's these officials that will continue to push them past the point of no return.
One of the biggest scandals that lit up the news recently was that of former Chinese politician Bo Xilai's wife, Gu Kailai, who was tried and convicted for the murder of British businessman Neil Heywood. The murder took place after an alleged dispute between Heywood and Gu Kailai, during which Heywood was said to have threatened the woman's son.
But this trial, which repeatedly made international headlines, is just the tip of the iceberg for Chinese government corruption...
Other instances are much less public, lack hard evidence, and are therefore all the more treacherous to the economy.
In March the son of senior party official Ling Jihua was killed in a car accident. It wasn't the tragic death that struck suspicion, but the circumstances surrounding the event: Ling Jihua's son was driving a Ferrari when he crashed, a car worth $270,000.
His father, meanwhile, makes a reported annual salary of $15,000. The car was worth 18x his father's annual pay. 
Many have become suspicious that Ling Jihua was taking bribes in order to afford such a luxurious vehicle. It seems like the only logical way he could own a car worth eighteen times his annual income.
And while officials like Ling are taking extravagant bribes, the surrounding economy is starting to rot away...
Strong Production, Weak Demand
The steel sector may be one of the most deeply affected.
The price of imported iron ore has dropped by almost half over the past year hitting a three year low in September. Iron ore is a key ingredient in steel, and this dramatic price drop is indicative of weakened industrial demand. Because of this, steel prices are down as well...
But steel manufacturers haven't slowed their trade.
The steel-making business in China is, for the most part, state-run. This means that the local governments benefit from tax revenues.
And even though Chinese steel businesses have not been profitable lately — demand and prices are both down, but manufacturing is up — the businesses are bringing in revenue. It's the taxes from this revenue that matter to the local governments. 
Meanwhile, the steel traders are put in a tight spot.
One trader from the Henan province discussed the business with the Financial Times: “We have to try every possible means to sell [our steel] even if we lose money. We will lose more if we don't sell.”
But they're not selling. They're just isn't demand to support the over-manufacturing from the industry.
Government officials, however, are focused on bringing in local government revenue... and steel manufacturers and traders are being buried under the weight of overproduction.
Housing Bubble
Another factor weighing on China's growth (perhaps more than we even know) is the housing bubble.
With such a massive population, China has plenty of bustling, overcrowded cities: Shanghai with over 16 million people; Beijing with a population exceeding 12 million; and Chongqing with more than 9 million residents, among others.
But just as distinct are the empty buildings in these areas.
Last  year it was revealed that in Beijing alone, there were 3.812 million vacant homes.
That's over one million more vacancies than in the entire United States at that time.
Jim Chanos, president of Kynikos Associates, has been warning about a Chinese housing bubble for several months. It's these vacancies, he believes, that will contribute to the burst: “In China's GDP calculations, they don't look at final sales, they look at production. So a condo being built but not sold contributes to GDP.”
And vacant businesses count here, too...
In China's Dongguant, for example, the New South China Mall has 9.6 million square feet of floor space, its own indoor roller coaster, and less than twelve shops.
All over China, massive building projects like these intended to boost GDP remain empty.
As Chanos told CNNMoney: “This is a country that's in the middle of an epic property bubble that will end at some point and it won't be pleasant when it ends.”
Amid all this empty space, housing prices remain unreasonably high.
The central government in Beijing is trying to impose restrictions to prevent price increase for housing, but local governments just aren't having it. In fact, prices have been going up since the start of this year:

The local governments tend to have relationships with housing developers. Often the banks are involved. These groups benefit when prices are high.
Beijing is trying to put a stop to this, but it's having a tough time doing so.
Bad Loans
But that's not the only kind of manipulation in which the banks are involved...
While other nations like Greece and Spain have recently taken the cake for bad credit, China is not much better off.
One of the biggest issues plaguing the credit sector is the large number of “bad loans.”
A report by the rating company Standard & Poor's showed just how bad the situation is. Ryan Tsang, a Hong Kong-based analyst, wrote in the report: “A credit turndown is unfolding in China. Massive market-driven consolidation may be in the cards for many players as credit quality becomes dramatically polarized.”
In August the 3,800 banks across the nation reported a rise in the number of non-performing loans. It marked the third quarter of this increase.
Desperate to stay afloat, businesses are looking for extensions on existing loans, and though the banks are reluctant to comply, local politicians are pressuring them to do so.
The situation continues to get worse. Corporate delinquencies continue to increase, net interest margins get smaller, and liquidity management is “increasingly strained.” And S&P expects this to continue for the next three to five years.
Chanos is bearish on China's credit sector. As he said during an interview with Opalesque TV:

The interesting thing about the China story getting back to the macro and micro, and as dire as I think the macro story is — due to bad credit and credit extension that makes Greece and Spain and the U.S. look like child's play — when you get to the micro of individual companies, they look even worse...
The accounting is horrible, they all seem to have negative cash-flow, noncollectable receivables, they all seem to not earn their cost of capital.

Precarious Balance
China's growth target for 2013 is 7.5%. If it fails to meet this, GDP will be at a twenty-year low. The nation's exports are declining quickly, heading back to 2008 levels. And the threat of inflation lingers...
China imports much of its corn and soybean, but the U.S. drought this summer hurt the crops, pushing up prices.
China's will maintain a 4% inflation target this year, and a good harvest from the U.S. this year was expected to help keep it down. But now that the harvest is expected to be weak and prices are rising, inflation could hit China once again.
If China hopes to stabilize this precarious balance, it will require a lot more cooperation from the local governments. The central government will need to ramp up regulations, and it will need to work closely with each one of these weakened sectors.
Li Zuojun, deputy director at the Development Research Center of the State Council, wrote in a paper detailing the specific ways China must overcome its economic challenges:

If the government uses a superb macro-control technique, lets the air out of the bubbles little by little without triggering an economic crisis or social unrest, and timely cultivates new economic growth and new competitive advantages so that businesses are restructured and upgraded...the bubbles would not burst. However, in 2013 there will be unprecedented pressure, which will warrant a high degree of vigilance and attention.

But if government corruption continues to overshadow this “vigilance and attention” to economic growth, China's situation will get worse... to the point that thirty years of growth will implode.

HSI Update

20400 is the real test, options data indicate that for the few days short run before closing, it should stay below it. if it does breakout above then there should be severe short covering prompting a sharp rally up a few hundred points.

there is also heavy put options at 19800, if monday closes below this point then the downside would be close to 19400.

given the outlook of gold and crude oil haven't really changed, the medium term outlook is still down though a rebound might be in the cards given the turnover is close to 100 billion.

HO - Hindenburg Omen

check out this indicator as stated in marketwatch


Oh the humanity, Damien! No, the “Hindenburg Omen” isn’t a mid-1970s movie mashup where a pint-sized Antichrist causes a Zeppelin to explode. Rather, it’s a mashup of technical indicators that’s meant to signal a high probability that the stock market will crash and burn.
And the reason it’s been getting so much chatter lately is that the stars have already aligned, just as they did in October 2007.
But exactly what are the signs of the Hindenburg Omen? Well, a series of market breadth indicators need to occur twice within 36 trading days of each other to portend a serious market decline within the next 40 days.

• Both the daily number of 52-week highs and 52-week lows on the New York Stock Exchange are equal or greater than 2.2% of NYSE stocks that day.
• The 10-week (or 50-day) moving average is rising.
• The McClellan Oscillator, a measure of market breadth based on exponential moving averages of advancing and declining stocks, must be negative, or bearish.
• New 52-week highs are not more than twice the number of 52-week lows.

All four of those conditions were met on April 15 and May 29, according to Jonathan Krinsky, chief technical market analyst at Miller Tabak & Co. On April 15, there were 70 new 52-week highs and 77 new 52-week lows, exceeding 2.2% of issues, while on May 29th there were 58 new 52-week highs and 104 new 52-week lows.
“According to Bloomberg, the last ‘confirmed’ omen was in October 2007,” Krinsky wrote in a recent note. “It makes some sense given the dispersion between new 52 week highs and lows. Therefore, it is always good to be aware of it, even if it proves to be nothing more than a silly topic to bring up at your next cocktail party.”
The Hindenburg Omen (HO), however, has garnered a fair amount of savage criticism. While the HO preceded market downturns in 2008 and 1987, critics point out that stock market declines occurred only 25% of the time after conditions of the HO were met.
Chief Investment Officer Adam Grimes at Waverly Advisors called the HO “an example of the worst kind of ‘technical analysis’—a market signal essentially designed for media soundbites,” in emailed comment Monday.
“This signal was created in a different market environment, and we might reasonably ask if the NYSE, which represents roughly 10% of the total U.S. market, is actually the best representation today,” Grimes said.
Still, the creator of the HO, Jim Miekka, told WSJ’s MoneyBeat blog he’s preparing to bail out of the market. Then again, Miekka also said much the same thing in mid-August 2010, when the S&P 500 Index SPX -0.04% was around 1,079. By the end of the month, the S&P 500 had slipped nearly 4% to 1,040. It followed that up by rising 30%  to 1,347 over the next 11 months.
Either way, the HO this past week showed how much attention you can garner with an ominous sounding name in times of market skittishness, and generated its share of Tweets.

Stock markets

we might be seeing a short consolidation in the stock market as we are seeing a period of disinflation or deflation, check out texas crude and brent prices [92.8, 102.4], the usual gap [used to be usd20+] that exists in the past two years are narrowing and fast.

what is this narrowing in price gap telling us?

prices of crude are coming down and in a fast way either because of increase in supply [thanks to us shale oil discovery] or a decline in demand [euro zone recession] or both.

no matter what the reason is, when crude prices come down, disinflation sets in, this will initially brings down the stock market [at least for oil and mining stocks] and after stabilization of prices for a while, there could be a long rally if inflation is under control. read this blog on gold n stock market on 10 mar 2013.

commodity currencies [aud, cad, nzd] are telling the same story, they are all dropping like a stone, why? as commodities would also be in a falling trend. countries producing commodities would not reap benefits as in a rising trend like 2005-7, their gdp would undoubtedly be under stress, so are their currencies.

read blog on aud cad nzd on 6 nov 2011, the conclusions then drawn are still valid even it is over 18 months ago.

Dilemma China might be facing

all manufacturers must heed, wsj article worth reading.


China Is Too Large for Its Own Good

In the debate over the future of China’s growth, one factor typically animates the bulls more than any other: the country’s sheer size. One way or another, this undergirds most optimistic scenarios.

China is so big it can absorb years and years of public-works spending without waste becoming a drag. The population is so large, and still sufficiently poor, that there is seemingly infinite scope for catch-up growth.

The reality is very different. China’s mammoth proportions are likely to become a serious and growing problem as the economy enters a new phase of development— and particularly as it tries to transition from its current role as the world’s low-cost factory to a value-added manufacturing power.

The argument that China has scope for catch-up growth hinges on the fact that its average standard of living is only 17% of America’s (when measured using purchasing- power parity, with prices calibrated to U.S. levels). By contrast, Japan ended its near-10% growth phase in the mid-1970s with average standard of living at more than 70% of America’s. Some interpret this to mean that for the foreseeable future China can achieve rapid growth simply by
importing technologies to boost the productivity of its cheap labor force as it converges on America’s standard of living.

This misses a key point, however. China can physically raise production, but that will sustain growth only if China can sell the extra products. And if it can’t sell them abroad, then it can grow only by selling more at home.

Small countries can go on capturing shares in big world markets until their income per head catches up. Big countries can’t, unless they make world markets commensurately bigger. Either their share of world consumption must grow or their share of world production will stop growing. China already dominates both production and capacity at the low-value-added assembly end of manufacturing. China’s huge size means that to maintain stellar growth rates, the economy needs to move up the value-added chain fast and grab more export market share. But to generate domestic consumption, wages need to rise— undermining the competitive edge
that would allow China to grab more export market share.

A seemingly inexhaustible supply of cheap labor has been one of the key ingredients of China’s miraculous growth, but now China could be reaching a “Lewis turning point.”

Described by 20th-century economist Arthur Lewis, this is the point at which excess labor in
low-productivity industries has been fully absorbed into the highproductivity industries. At this point wages begin to rise as competition for workers becomes fiercer, and corporate profits are squeezed. In January the International Monetary Fund released a paper arguing that China will reach the Lewis turning point between 2020 and 2025. But other evidence suggests we’re already there. Wages have been rising for years now, and profits in 2012 fell sharply—both telltale signs.

Here again China’s size works against it. The rise in productivity and wages is a great boon for
workers in high-productivity jobs. But many of China’s workers don’t have the higher skills necessary for the economy to move up the value-added chain. And the squeeze on corporate profits engendered by the Lewis turning point will make it harder for companies to invest in boosting the productivity of today’s low-skilled workers.

There’s also the question of how productive today’s high-productivity workers really are. On the plane back from Shanghai recently, I sat next to an Italian gentleman who produces valves. He manufactures low-quality ones in China and high-quality ones in Italy, where he uses much more complicated machinery. I asked him why he doesn’t import the machinery to China and produce higher-quality valves more cheaply. He responded that a Chinese competitor of his bought two machines from him with that idea in mind but had to shut both down within six months because he lacked the qualified workers to operate them.

China may still have abundant rural labor supply, but it has a shortage of the skilled labor supply it now needs. Labor shortage is good news for consumer incomes (at least for those consumers whose labor warrants the higher wages) but only if consumer spending rises at the same or faster pace than consumer incomes, and productivity growth is the same as or exceeds wage growth. If not, profits will be decimated, which will then feed into lower consumer incomes. There are some signs that this is happening in China, where the household consumption rate continued to fall in 2012.

The world isn’t big enough for China to rise up the value-added chain without generating domestic consumer spending. Policy makers in Beijing seem to acknowledge this, but creating genuinely independent Chinese consumers will be difficult work.

Ms. Choyleva is a director at
Lombard Street Research.

Real Estate in HK [and elsewhere]

those of you who are familiar with HK real estate should know that the government had implemented a series of measure over two administrative actions to cool property demand. it works for a while at the moment but not for long as i see the following:

1. interest rates stay low for a very long time - maybe beyond 2015, us government cannot afford interest rate hikes although they are talking about it all the time as smoke screen;
2. population demand - we have an intake of 150 immigrants from china on a daily basis, ie a total of 50,000 headcount added to the present population annually. this is equivalent to at least 17000 home units assuming a three person family residence. this has still not taken care of investor immigrants, special talent immigrants, mainland or overseas students turned residents after graduation, illegal over stayers, expat coming here to work;
3. the recent mortgage interest rate hike is coming to an end or only another 0.25% hike will end it all, therefore a continuous rate hike trend is not in the cards as many people think;
4. HK born china babies coming for education.

only three factors will dent housing demand:

1. mortgage rates beyond 4-5%
2. unemployment creeps up to 5% and beyond ie economy doing badly [really bad]
3. usd appreciates in value over the long term thereby reducing value of assets denominated in usd [hkd linked to usd].

HK is one of the big cities that attract people from all over the world and china to come, live and work, just like every big city in a populous nation.

the usa is having a similar situation in big cities as there is no way to find virgin land for housing, they turn to making units smaller to accommodate the needs.

read article here below from bloomberg.

Micro-Apartments in the Big City: A Trend Builds

By Venessa Wong on March 14, 2013

http://www.businessweek.com/articles/2013-03-14/micro-apartments-in-the-big-city-a-trend-builds

 

Imagine waking in a 15-by-15-foot apartment that still manages to have everything you need. The bed collapses into the wall, and a breakfast table extends down from the back of the bed once it’s tucked away. Instead of closets, look overhead to nooks suspended from the ceiling. Company coming? Get out the stools that stack like nesting dolls in an ottoman.
Micro-apartments, in some cases smaller than college dorm rooms, are cropping up in North American cities as urban planners experiment with new types of housing to accommodate growing numbers of single professionals, students, and the elderly. Single-person households made up 26.7 percent of the U.S. total in 2010, vs. 17.6 percent in 1970, according to Census Bureau data. In cities, the proportion is often higher: In New York, it’s about 33 percent. And these boîtes aren’t just for singles. The idea is to be more efficient and eventually to offer cheaper rents.
To foster innovation, several municipalities are waiving zoning regulations to allow construction of smaller dwellings at select sites. In November, San Francisco reduced minimum requirements for a pilot project to 220 square feet, from 290, for a two-person efficiency unit. In Boston, where most homes are at least 450 sq. ft., the city has approved 300 new units as small as 375 sq. ft. With the blessing of local authorities, a developer in Vancouver in 2011 converted a single-room occupancy hotel into 30 “micro-lofts” under 300 sq. ft. Seattle and Chicago have also green-lighted micro-apartments.
“In the foreseeable future, this trend will continue,” says Avi Friedman, a professor and director of the Affordable Homes Research Group at McGill University’s School of Architecture. A growing number of people are opting to live alone or not to have children, he says. Among this group, many choose cities over suburbs to reduce reliance on cars and cut commute times. “Many people recognize that there is a great deal of value to living in the city,” he says.
Friedman calls the new fashion for micro-digs the “Europeanization” of North America. In the U.K. the average home is only 915 square feet. In the U.S. the average new single-family home is 2,480 square feet. The National Association of Home Builders expects that to shrink to 2,152 square feet by 2015.
Small living has deep roots in Japan, where land is scarce. “It’s just the way things have always been done,” says Azby Brown, an architect and author of The Very Small Home: Japanese Ideas for Living Well in Limited Space. Three hundred square feet may sound tight, but consider that Japanese families historically lived in row houses outfitted with 100-square-foot living quarters and large communal areas. After World War II, Japan’s homes grew, though not much by American standards. By the late 1980s the average Japanese home measured 900 square feet.
Tight quarters demand ingenuity and compromise. Think of the Japanese futon or the under-the-counter refrigerator, a feature of European apartments. The Murphy bed gets a sleek makeover in a mock-up of a micro-apartment on exhibit at the Museum of the City of New York. The 325-square-foot space, designed by New York architect Amie Gross, also features a table on wheels that can be tucked under a kitchen counter and a flat-screen TV that slides along a rail attached to built-in shelves. Visual tricks such as high ceilings and varied floor materials make the space feel roomier.
The show, titled “Making Room: New Models for Housing New Yorkers,” displays some of the entries from a design competition sponsored by New York’s Department of Housing Preservation and Development. The winning team, comprising Monadnock Development, Actors Fund Housing Development, and nArchitects, secured permission to erect a 10-story building in Manhattan made of prefabricated steel modules. Some of the 55 units will be as small as 250 square feet. “The hope is that with more supply, that should help with the affordability of these kinds of apartments so that the young or the elderly can afford to live closer to the center and not have to commute so far in,” says Mimi Hoang, a co-founder of nArchitects.
Although tiny, these properties aren’t cheap, at least not on a per-square-foot basis. In San Francisco, where two projects are under way, rents will range from $1,200 to $1,500 per month. In New York, the 20-odd units for low- and middle-income renters will start at $939.
Ted Smith, an architect in San Diego, says singles would be better served by residences that group efficiency studios into suites with communal areas for cooking, dining, and recreation. “The market does not want little motel rooms to live in,” he says. “There needs to be cool, hip buildings that everyone loves and goes, ‘Man, these little units are wonderful,’ not ‘I guess I can put up with this.’ ”
The bottom line: Developers of micro-apartments are targeting urban professionals living alone. Quarters may be small, but rents are not.