Chinese Bubble

Vitaliy Katsenelson has posted an excellent article on the chinese currency bubble. I have previously talked about this impending issue. Vitaliy's explanation is well articulated and is an enjoying read.

To add my comments to it, it appears that the newspapers do not stress enough about this topic but they really should. This is something that will likely be the cause of the next market upheaval. Unfortunately, the media and government is more interested in creating short-term consumption demand rather than to look at the real long-term problem out there.

American Economy: A Short History Lesson

If anything, this recent crisis has shown us that macroeconomics matters. Here is an instructive and short video on the history of the American economy since WWII. Enjoy.

Eclipse and Mr. Market

Graham's infamous Mr. Market persona is evidently even more insane than Ben Graham may have assumed.

In the three days around the date of an eclipse, three of the four stock indices exhibited lower-than-average returns. The depressive effect of the eclipse was slight—around a seventeenth of 1%—but it was there. Moreover, if an eclipse took place on a weekday, when the stockmarkets were open, its effect was larger than if it occurred on a Saturday or Sunday. And the greater the magnitude of the eclipse—that is, the bigger the percentage of the sun covered by the moon, or of the moon covered by the Earth’s shadow—the more likely it was to have a demonstrable effect on stock returns.

Fed Transparency Bill

Ron Paul has sponsored a bill that will allow for the auditing of the Federal Reserve by the GAO. Here is an intelligent audio interview (and related article) with Ron Paul, where he explains his rationale, and also describes his ultimate agenda.

I am not sure where I stand on this issue, but it certainly is interesting to see this happening so close to the inflation/dollar crisis. We certainly live in interesting times.

Much ado about the reserve currency

It is obvious to everyone, except perhaps sections of the US population, that the US$ has no "divine" right to be the reserve currency. For the longest time, it was the pound sterling that was the dominant choice of governments for their savings.

With the recent stimuli and quantitative easing, countries like China are worried that their vast quantities of dollars are going to be worth less (note: not worthless). China currently owns $1.4 trillion, i.e. about one-third of all dollar denominated reserves of the world. No wonder they are terrified.

But they are the victim of their own practises. This article explains it all in a very concise fashion as follows:

But China’s real problem is that it is running a persistent current-account surplus; in order to keep the yuan closely tied to the dollar it has to keep buying more dollar assets. If China really wants to reduce its exposure to the greenback it must allow the yuan to rise. It would incur a loss on its existing reserves but stem future losses. But so long as China maintains its current exchange-rate policy, it is, ironically, helping keep the dollar dominant.

Also, here is a previous post on this very topic: Why the world cannot ditch the US$ as easily as they would like.

[CORRECTION: After posting above, I came across the latest numbers from China. They own over $2trn.]

Banking Liberalization: Spring in Japan?

Image via Wikipedia

As the western banking giants get tied up in more regulations, it looks like Japan's banking sector is becoming more liberal.

Did they not learn from follies of the west, or is this a strategic move to attract the dangerous "sophisticated" financial instruments from the west?

Perhaps, this is decision will sow the seeds for the long awaited Japanese recovery.

Green Shoots: waning public sentiment

Pew Research has released a study showing the public sentiment on the green shoots theory. It appears that it is slowing down.

It is the "things are not as bad as we originally thought, but they are still pretty damn bad-- and possibly getting worse" situation.

This could snowball into another market dip revealing possible buying opportunities.

As of this writing, the market appears modestly overvalued.

Applying Value Investing lessons to daily life

More often than not, lessons of daily life are used to create investing philosophies. But the Value Investing is such a strong, sturdy and simple ideology that I don't see why the daily life of an investor (note, not a speculator) should follow different principles than their investing life.

One example that I recently found applying, quite unconsciously, was the principle of the market being a long term weighing machine [and a voting machine in the short term].

The daily life situation I encountered was the question of job competence of a person I work with. In my opinion, they aren't the most competent and the job position could use someone more appropriate. The only reason they are in that position is because it is perceived by their superiors that there is existence of competence there. Although, I am able to see through the act/facade.

Instead of being upset or disgruntled about this situation, I found myself making the argument that on a long enough time line this person will have to prove themselves, or the superiors will realize their [supposed] mistake-- because they themselves have to continue to appear competent to their bosses. Essentially, on a long enough time line, everyone has to earn their keep. Some have to earn is fast; some have the luxury of time.

Going back to investing, think of that brilliant idea that you have-- a wonderful business that you bought, but it has taken years for the rest of the market to realize that. Well, if your convictions are right, remember that on a long enough time line, the business will earn its keep in your portfolio and will carry its deserved weight.

Daily life, or not, to me it looks like it is all a matter of temperament and attitude.

The Myth of the Rational Market

There is yet another book explaining how irrational the markets can be. This book is rather topical, but people are finally listening.

I came across this one on this episode of the Daily Show. Justin Fox was entertaining, but this isn't anything new to the value investor crowd. We know that the markets can be quite irrational and some of us have made quite a life out of this "worst kept secret".