Monday, December 13, 2010
But first, I need to finish trimming the tree, the Christmas baking and wrapping all the gifts. So.....
I would strongly encourage everyone to watch the triumph of reality over theory. It can be watched in real time using the Treasury's new charting option. Long term rates here. Yield Curve here. Look at this:
No one can say we didn't know this was coming, and monetary policy made it worse.
The full text of the VA decision on Obamacare is here. It's worth a read. Ultimately this will be decided by the SC. They can't get out of it now. That's the significance of today's decision. SC has to rule, because lower courts are conflicted. In theory they don't have to do anything, but this is a classic situation. If they refused, we could theoretically have a situation in which in some US circuits Obamacare was not legal and in some it was. The SC will be embarrassed into it. According to the Chief, Obama will have reason to regret pissing in the SC's beer during the State of the Union address. The Chief describes this as "short-sighted". Update: See Carl's analysis of the decision. It's, er, comprehensive.
On the last post, Neil commented on the Chinese data:
This sorta kills the growth story of the "developing Chinese middle class". Those aren't high-value consumer goods categories experiencing inflation. The Chinese leadership seems to be about out of time. "Out of speed, out of altitude, out of ideas", as the saying goes.There has been a lot of talk about the Chinese middle class. You can make up your own mind, but remember Michael Adam's dictat about the middle class and frugality. High inflation is extremely injurious to capital formation for those who rely on their labor. As to Neil's opinion on the Chinese leadership, the Chinese leadership did not raise rates in response to this report. They may be feeling a lot of pressure.
Here are some links bearing on the Chinese middle class issue from a non-Wall Street perspective:
Link one: ADB and the Asian middle class.
Link two: The Chinese Middle Class doesn't feel that way.
Link three: Middle Class: Mother-in-laws and Mixed Emotions. (read this in its entirety)
Link four: No Home, No Middle Class.
Link five: One-Third of Your Income On Discretionary?
Obviously there is a conflict here. It's only been a bit over a decade since private housing was encouraged in China, and I think the mating-associated drive to purchase a home has on net driven down living standards for Chinese. This has produced a rather distraught generation. The one-child policy produced a generation of males that really have to kow-tow to their prospective mother-in-laws. Since the parents are really being taken for their savings in order to get that all-important grandchild, I think the Chinese housing boom for the middle and working class is beginning to reach the buyer's exhaustion point. In any case, something has to give. Either they can have the car and the restaurants and the vacations, or they can have the home (in some cases). But the Chinese middle-class can't have both.
Since WWII, Michael Adam's frugal middle class has been the rule in the US. Most people had to save and spend much less than one-third of their income on discretionary purchases in order to buy a home and eventually achieve financial security. The pressures on the Chinese are more acute because they have little in the way of a social safety net. It is a paradox that a generation of elders are spending a good chunk of their life's savings to get their one child into an apartment and a grandchild. What will happen to them when they need to retire?
Even in the US, the recent trend away from frugality and limiting consumption has imperiled a huge group of middle-class wannabes and truly destroyed our economy. However one can walk away from that house and declare BK on those CCs, so there is a repair mechanism - but the time frame from bust, cards-on-the-table to the generation of a new group of the unencumbered is generally five years for smaller purchases and 7 to 9 for housing. Oops!
Thats a direct quote from over at ace of spades.
BUT on china, it's definately the eye of the storm now. BUT MOM....china is so not transparent. Cant they just brush these problem under the rug.
If you read through the stat links that I have been listing for China, the "sagging" is already clearly evident in the higher priced markets.
We're now getting beyond the point where installing someone like Volcker will make any difference. It'll take Volker-like policies PLUS large repudiations of debt; I'm still convinced that we are going to see several union-belt cities declare bankruptcy.
I think there is more in the works than this; here's one example.