Minsky on financial instability

Posted in economics, financial crisis on March 25th, 2014 by Paul Deng – Be the first to comment

Stability is destabilizing.

BBC runs a 30-minute program on Minsky and why his insights matter.

minsky bbc

China’s debt boom will have consequence

Posted in asset bubble, China, debt crisis on January 8th, 2014 by Paul Deng – 1 Comment

China’s policy makers are facing a real challenge to deal with the fast and furious debt buidup. The comparison below is alarming.

China debt level compared to crisis countries

(graph courtesy of WSJ)

Now, it looks as if China’s stimulus plan enacted during 2008-09 period may have just postponed the crisis, not killed it. As we say, there is no free lunch.

A recent report from Goldman Sachs shows that most debt, more than 70%, is concentrated in the corporate sector.  My hunch is that most of the leverage in the corporates came from large state-owned enterprises (SOEs), or investment vehicles created by local governments, the so-called LGFVs.  See the chart below (courteys of GS).

china debt break down

 

Are we prepared for the next financial crisis?

Posted in crisis, debt crisis, financial crisis on August 26th, 2013 by Paul Deng – Be the first to comment

A discussion at Chicago Booth:

some facts about gold

Posted in Gold on December 18th, 2012 by Paul Deng – 5 Comments

In reading Campbell Harvey’s research on gold, I thought the following 3 charts were most interesting.

1. the real price of gold in the last 200 years

real price of gold 200 years

– the current period of price surge of gold has been extraordinary, even dwarfing the gold bubble in late 1970s.  The #1 fact to bear in mind is gold price will eventually tumble in a very big way – it’s fool’s game that you think you can time the market.

 

2. how the gold price is related to real interest rate

gold price and real interest rate

– in my mind, I always think real interest rate plays a bigger role in determining the price of gold than any other factors, incl. inflation.

 

3. three elasticities of gold price: a. jewelry demand; b. investment demand; c. technology demand

gold price elasticity

– jewelry demand responds negatively to gold price: as price increases, fewer people can afford it in countries like India and China, where gold jewelry is popular.

– the waning jewelry demand is more than offset by increasing investment demand, especially in the age of ETFs.

– technology demand (or rather supply) responds to gold price very slowly due to the fact innovation in mining gold takes time, but eventually it will catch up.

 

Do more choices make people happier?

Posted in economics on January 22nd, 2012 by Paul Deng – 1 Comment

It’s one of the fundamental assumptions in economics that people’s welfare will improve with more choices, and more varieties.  In the following TED video, Sheena Iyengar at Columbia challenges such view with some vivid examples.  She also offered some clever ways to avoid the problem of choice-overload.

 

Grantham on value investing and China

Posted in value investing on June 14th, 2009 by Paul Deng – Be the first to comment

Jeremy Gratham of GMO talks about value investing: high growth does not mean high return to capital; it all depends on your entry point. He applies this classic investment philosophy to China. (source: Morngingstar Investment Conference, May 2009)

My wish for this year’s Nobel prize in economics

Posted in economics on October 9th, 2014 by Paul Deng – Be the first to comment

I know it’s a fool’s business trying to predict who is going to win the prize every year.

But here is my wish:

Oliver Hart and/or Ben Holmstrom

For his (or their) contribution to the theory of firm.

Why most Americans don’t feel the recession is over?

Posted in recovery, United States on October 9th, 2014 by Paul Deng – Be the first to comment

During the past five years, I have seen many similar charts.  But this one really stands out as the best story-teller.

us income growth by income group 90 vs. 10

(source: vox.com)

Still the same

Posted in labor market, Unemployment on March 21st, 2014 by Paul Deng – Be the first to comment

Official unemployment rate has gone down dramatically, but the improvement of labor market has been largely fake, as the employment-population ratio hasn’t moved much since recession ended.  See this sharp chart from John Taylor at Stanford.

emp-pop-feb-2014

You can also take a longer term perspective at this ratio below:

emp-pop ratio time series

Feel puzzled? You can find out the reason why unemployment rate and the employment-population ratio tend to diverge during this reovery here.

 

R&D and a hint of China’s future global brand

Posted in China on January 20th, 2014 by Paul Deng – 1 Comment

According to a study released in December by U.S.-based Battelle Memorial Institute, R&D spending in China will likely reach $284 billion this year, up 22% from 2012. That compares with just 4% growth forecast in the U.S. to $465 billion for the same period. It forecasts China will surpass Europe in terms of R&D spending by 2018 and exceed the U.S. by 2022.

China rd spending compare

According to WSJ, three Chinese companies are likely to emerge as China’s innovation leaders.  They are Huawei, Lenovo and Tencent.

At Shenzhen-based Huawei Technologies Co., the world’s second-largest telecommunications-equipment supplier by revenue after Sweden’s Ericsson, annual R&D expenditures rose fourteenfold in a decade to $5.46 billion in 2013 from $389 million in 2003.

Personal-computer maker Lenovo Group Ltd., which last year overtook Hewlett-Packard Co.  as the world’s largest PC maker by units sold, is setting a new precedent with its aggressive global expansion in smartphones.

Tencent Holdings Ltd., owns the WeChat smartphone application. Launched in late 2010, WeChat dominates China’s mobile messaging market and the majority of the app’s 272 million monthly active users are in China. But last year, it spent $200 million on overseas ad campaigns to push WeChat into many markets including India, South Africa, Spain and Italy. Tencent says the app has more than 100 million downloads abroad.  WeChat was ahead of competitors in offering an easy-to-use feature for sending recorded voice messages and it is challenging the dominance of Silicon Valley’s WhatsApp, which has more than 300 million monthly active users globally.

Tencent’s share price nearly doubled last year and its market capitalization of $123 billion isn’t far from Facebook Inc.’s $139 billion market value.

 

Deflation talk resurfaces

Posted in deflation on January 16th, 2014 by Paul Deng – Be the first to comment

Inflation in the UK has fallen back to the Bank of England’s 2 per cent target for the first time in years, while the US consumer price index is up by only 1.2 per cent on a year ago. But the eurozone is at greatest risk, with inflation falling to only 0.8 per cent in December and unemployment still stuck at 12.1 per cent.

 
Deflation talk comes again.

The fall of SAC

Posted in Economy on January 9th, 2014 by Paul Deng – 1 Comment

Frontline special: To Catch a Trader – The fall of king of hedge fund, SAC.

Fantastic journalism and story.

SAC performance

Bob Shiller on bubbles and psychology

Posted in asset bubble, economics on January 6th, 2014 by Paul Deng – Be the first to comment

This was an interview in last December from PBS.

Bob Shiller: The whole idea that the stock market reflects fundamentals is, I think, wrong. It really reflects psychology. The aggregate stock market reflects psychology more than fundamentals.

Shiller also pointed out why economists at the Fed will not call it a bubble even when they see it – This has something to do with group think and self-censorship.

Economics of holiday gift-giving

Posted in economics on December 21st, 2013 by Paul Deng – Be the first to comment

A survey of leading economists on the following statement:

Giving specific presents as holiday gifts is inefficient,because recipients could satisfy their preferences much better with cash.

 

Link to the survey results