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How China sees America?

In the following video, Andrew Nathan talks about his new article (with the same subject title), which is about to appear on the next issue of Foreign Affairs.

 

US 10-year Treasury Yield at 220-year Low

The 10-year Treasury yield is one of the most watched market and macro indicators. For example, former Fed Chairman Alan Greenspan watched the yield regularly. Once he sees the yield, he immediately knows what’s going on with the US economy.

Today (July 23, 2012), the yield reads 1.43%. In the last couple of months, with European situation not getting better, and the US recovery seeming to falter again (for the consecutive three years), the yield has remained at historical low level around lower 140 bps.

To put this into historical perspective, according to the research by Bank of America /Merrill Lynch, this is the lowest level since 1790, lower than the yields after the WWII, more than ten years after the Great Depression. See the chart below.

At this depressed level, it seems to indicate the US economy will remain subpar for many years to come – another Japan?

The rise of rentership

The rise of rentership in the US, and the decline of home ownership.

http://research.stlouisfed.org/fred2/data/USHOWN_Max_630_378.png

According to WSJ,

In the post-bust climate, renting has emerged as a much more economically efficient way to pay for housing. A one-year lease represents a far less onerous financial obligation than a 30-year mortgage. It's difficult to get into too much financial trouble as a renter. The homeownership rate has fallen from its peak in 2006 to 65.4% today. The foreclosure crisis, which has caused millions of Americans to turn over homes to lenders, is responsible for much of this decline. What's more, given the weak labor market and higher lending standards, more Americans today have a difficult time scraping together the required down payments.

For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

It's tempting to view the rise of rentership as an economic step backward. Renters can't build up equity, and they have less control over their living standards than owners. Renting is generally seen as something you do when you've failed as a homeowner or are not yet ready to be one. But I'd argue the rise of rentership is a sign of a system adapting—albeit too slowly—to new realities.

The U.S. economy needs the dynamism that renting enables as much as—if not more than—it needs the stability that ownership engenders. In the current economy, there are vast gulfs between the employment pictures in different regions and states, from 12% unemployment in Nevada to 3% unemployment in North Dakota. But a steelworker in Buffalo, or an underemployed construction worker in Las Vegas, can't easily take his skills to where they are needed in North Dakota or Wyoming if he's underwater on his mortgage. Economists, in fact, have found that there is frequently a correlation between persistently high local unemployment rates and high levels of homeownership.

What the Chinese Want

WSJ essay on tastes of Chinese:

Apple has taken China by storm. A Starbucks can be found on practically every major street corner in coastal cities and beyond. From Nike to Buick to Siemens, Chinese consumers actively prefer Western brands over their domestic competitors. The rise of microbloggers, the popularity of rock bands with names like Hutong Fist and Catcher in the Rye, and even the newfound popularity of Christmas all seem to point toward a growing Westernization.

But don't be deceived by appearances. Consumers in China aren't becoming "Western." They are increasingly modern and international, but they remain distinctly Chinese. If I've learned anything from my 20 years working as an advertising executive in China, it is that successful Western brands craft their message here to be "global," not "foreign"—so that they can become vessels of Chinese culture.

Understanding China's consumer culture is a good starting point for understanding the nation itself, as it races toward superpower status. Though the country's economy and society are evolving rapidly, the underlying cultural blueprint has remained more or less constant for thousands of years. China is a Confucian society, a quixotic combination of top-down patriarchy and bottom-up social mobility. Citizens are driven by an ever-present conflict between standing out and fitting in, between ambition and regimentation. In Chinese society, individuals have no identity apart from obligations to, and acknowledgment by, others. The clan and nation are the eternal pillars of identity. Western individualism—the idea of defining oneself independent of society—doesn't exist.

 …

To win a following among Chinese buyers, brands have to follow three rules. First and most important, products that are consumed in public, directly or indirectly, command huge price premiums relative to goods used in private…The second rule is that the benefits of a product should be external, not internal. Even for luxury goods, celebrating individualism—with familiar Western notions like "what I want" and "how I feel"—doesn't work in China…The last rule for positioning a brand in China is that products must address the need to navigate the crosscurrents of ambition and regimentation, of standing out while fitting in. Men want to succeed without violating the rules of the game, which is why wealthier individuals prefer Audis or BMWs over flashy Maseratis.
 

4 potential endings for Greece

1. Exit;
2. Repudiate;
3. Renegotiate;
4. Repent.

This is such a good case for game theorists to analyze.  If Greece were to chose option #1 or #2, it's suicide.

Link to the discussion.

A debate on whether now is best time to own your first house

A nice debate.

Eric Lascelles of RBC Global Asset Management argues now is the best time to buy your first house, because interest rate is at historical low, house price has declined 34% from the 2006 peak, and owning a house has become relatively more attractive to renting in recent years.


Gary Shilling is on the other side.  He predicts further fall of house price by as much as 20%, due to excessive inventory. If taking into account of the hidden inventory (people chose to hold up because the current offer is too low), and future foreclosure, he argues, the situation is even worse.  He also cited Bob Shiller's research that showed in the past, when housing bubble burst, it tended to overshoot on the downside.  We haven't seen that yet.

My personal view is that it's a good time to buy your first house if you really love the location, and you have no plan to move to another place, say, in the next 5 years.  I would still stay away from using house as an investment.

Link to the WSJ article.

gender wage gap or hour gap?

Kay Hymowitz, fellow at Manhattan Institute, argues on Wall Street Journal that much of gender wage gap can be explained by the difference of hours worked by men and women.  In other words, men earn more than women because they work longer hours.  This is especially true when a child is born – most women, even the most educated, choose to stay home or work as part-time.

Most people have heard that full-time working American women earn only 77 cents for every dollar earned by men. Yet these numbers don’t take into account the actual number of hours worked. And it turns out that women work fewer hours than men.

The Labor Department defines full-time as 35 hours a week or more, and the “or more” is far more likely to refer to male workers than to female ones. According to the department, almost 55% of workers logging more than 35 hours a week are men. In 2007, 25% of men working full-time jobs had workweeks of 41 or more hours, compared with 14% of female full-time workers. In other words, the famous gender-wage gap is to a considerable degree a gender-hours gap.

The main reason that women spend less time at work than men—and that women are unlikely to be the richer sex—is obvious: children. Today, childless 20-something women do earn more than their male peers. But most are likely to cut back their hours after they have kids, giving men the hours, and income, advantage.

One study by the American Association for University Women looked at women who graduated from college in 1992-93 and found that 23% of those who had become mothers were out of the workforce in 2003; another 17% were working part-time. Fewer than 2% of fathers fell into those categories. Another study, of M.B.A. graduates from Chicago’s Booth School, discovered that only half of women with children were working full-time 10 years after graduation, compared with 95% of men.

Women, in fact, make up two-thirds of America’s part-time workforce. A just-released report from the New York Federal Reserve has even found that “opting-out” by midcareer college-educated wives, especially those with wealthy husbands, has been increasing over the past 20 years.

 

Jamie Dimon interview on “Meet The Press”