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Daily Archives: January 19, 2010

BYD to enter the US market

The electronic car made by Chinese firm BYD, which is invested by Warren Buffet, is scheduled to enter the US auto market second half of this year.  The car sells for $40,000…still too expensive.

Snapshot of China’s Wind Power Industry

China is trying hard to restructure its domestic economy and in the process it may produce overcapacity in new areas if the infrastructure of delivering and using these alternative energy sources are not in place in time (reports WSJ):

Beijing has big plans for wind power as a renewable energy of the future, but China may already have too much of a good thing.

At home, China's power-transmission infrastructure can't handle the intermittent electricity supply already being generated from wind. It is estimated that 30% of last year's wind-power supply went unused.

Despite that bottleneck, Beijing wants more. The government hopes to see 100 gigawatts of wind-power capacity installed in China by 2020, a more-than-eightfold increase from 2008, making wind the third most important source of power in China behind coal and hydroelectric. Even by next year, the amount of wind-power equipment being made will be twice what the nation can install, according to the central government.

That has implications abroad. Foreign rivals are raising concerns that Chinese producers will export their excess capacity at cheap prices. Wind power was one of the industries cited last week by the European Chamber of Commerce in China as likely to stir trade tensions.

The Chinese companies have already proven to be formidable competitors. Domestic producers have seen their Chinese market share blossom to nearly 60% collectively. That's largely at the expense of foreign players like Vestas Wind Systems, Gamesa and General Electric, which were dominant there just five years ago.

Critics suggest an implicit "Buy China" policy has helped the domestic players, but it's clear, too, that they have competed strongly on price. Data from analysts IHS CERA show Chinese equipment suppliers sell their turbines for almost two-thirds of the price of foreign competitors.

Not surprisingly, the number of players in the wind-power equipment sector has mushroomed, drawn to the sector by talk of greater reliance on renewable energy. Four companies accounted for more than 90% of the wind-turbine-manufacturing market in 2004. Now, 12 industry leaders account for about the same proportion, according to IHS CERA. Around 70 smaller firms are also active.

As local players duke it out, consolidation is likely in the near term. That will likely benefit the domestic industry leaders: Sinovel Wind, Xinjiang Goldwind Science & Technology and Dongfang Electric.

All this is happening in a market that is already uncertain as governments debate climate-change initiatives. Potential problems have already marred a United Nations wind-power credit program, for example.

The world may want China to commit to a greener future, but it's rapidly finding out that the push can come with some unwanted side effects.

Four things to worry in 2010

Among those, what worries me most is bank’s balance sheet.

Few would have dared predict 12 months ago that markets would rebound so strongly. Most major stock markets ended 2009 at or around their highs for the year. Both the S&P 500 and FTSE Eurotop 100 rallied 24% over the year, while corporate-bond markets and commodities also staged rallies.

But what about 2010? Most economists expect the recovery to be sustained, albeit with fewer opportunities, to make significant gains. But any optimism needs to be tempered by caution. The global economy still is exposed to significant risks. Here are four:

Sovereign risk: The Dubai World debt default and Greek fiscal crisis were reminders that vast amounts of debt remain outstanding, with implicit or explicit guarantees from friendly sovereign nations. Will those nations be willing to stand behind the debt? The market is betting Abu Dhabi will bail out Dubai and the euro zone won’t allow any of its members to default, even if the pain spreads to other highly indebted states such as Ireland and Spain. A more-pressing case may be the U.K., whose fiscal position is the worst in the industrialized world and which enjoys no implicit guarantee.


Exit strategies: The Federal Reserve and European Central Bank both have set out plans to withdraw much of the emergency liquidity supplied during the crisis. The Bank of England also is expected to stop buying U.K. government bonds in February. That could pave the way for considerable bond-market volatility, because central-bank programs have helped push down yields across all asset classes. Investors should be wary of parallels with 1994, when an unexpected U.S. interest-rate increase triggered a bond-market rout. On that score, they should be watching for any sniff of rising inflation.

Slow growth: Much of the optimism in the markets is based on expectations that global growth will be robust enough to speed up the process of deleveraging among overindebted Western economies. One risk to this outlook is that a combination of fiscal tightening and monetary-policy exit strategies leads to a “double-dip” recession. Another is that U.S. unemployment will be slow to fall while European unemployment continues to rise, leading to weak consumer demand. A slower-than-expected recovery would lead to higher bank-loan impairments and put more pressure on government fiscal deficits.

Bank balance sheets: The global banking system is in better health than a year ago, bolstered by large injections of equity and strong earnings. But trading desks could be vulnerable to any asset-price corrections. And doubts remain whether banks are facing up to the full extent of losses on loan books. The practice of “amend, extend and pretend,” particularly in relation to commercial property, may be concealing the true scale of bad debts. A sharp rise in bond-market yields also would put pressure on bank-funding costs.While 2010 is unlikely to bring anything like this year’s gut-wrenching volatility, investors shouldn’t expect it all to be plain sailing.

China’s hot money headache, continued

Following up my previous post on China’s hot money problem, here is another update (source: WSJ):

Capital control will never be effective. This is a classical problem for fixed-exchange rate system. No easy way out. It’s just a matter how big will be the hit when all hot money tries to get out at the same time.

A one-time reevaluation or even more dramatic measures may be on the horizon. And when it happens, don’t get surprised.

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Housing price and migration in the US

Housing prices and migration are negatively correlated.

The sharp drop in house prices in states like Florida, Neveda sharply slowed down the previous robust migration into America’s sunbelt.

Texas emerged largely unscathed after this crisis and is the biggest winner in terms of net inflow of population.

(click to enlarge)

full text here.

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