The Daily Reckoning - Sinositis (Bill Bonner)

verfasst von Firmian, 01.12.2003, 22:46

-->The Daily Reckoning

Paris, France

Friday, 28 November 2003

-----------------------

*** No news is good news... Black, Beige and the Blues...

*** Circus and pane... or is it pain?... A company that could
be, well, a gold mine...

*** An electoral offensive... a profuse apology... the China
Story... and more!

------------------------

Markets in America were closed yesterday. Offices too.

So, there were no cheery headlines to brighten up today's
news. No revisions of GDP or inflation levels... no new
figures on housing starts or consumer confidence.

Investors must have fidgeted all day - hoping for some
reassurance that the miracle economy was, indeed, still
miraculous... and not a fraud.

The miracle is that you can recover from too much spending
by spending more... that you can cure a debt problem by
borrowing more... that a consumer economy can grow forever
without ever having to concern itself about where consumers
get the money to spend... and that foreigners will go on
lending forever without ever worrying about getting their
money back.

It would be easier to walk on water... or turn water into
wine.

But the lumps aren't worried about it. And neither are we.

Let the miracle continue!

But let's not be a fool about it, either. There will come a
day when investors wake up with a sneaking suspicion that
the miracle is a fraud. That would be a good day to own a
few anti-miracle investments... such as a Laundromat
somewhere... or a goldmine in the middle of nowhere.

John Boland of Remnant Partners in Baltimore recently
revealed - at a Grant's investment conference in New York -
the kind of long-shot investment that might turn out to be
a lay-up in a less miraculous world. Durban Roodepoort Deep
is a South African mining company that was supposed to go
out of business 15 years ago, Boland told attendees.

Instead, it bought up reserves of 14.4 million ounces of
gold. Trouble is, the gold is deep under the surface, hence
the name of the company, and expensive to bring to the
surface. At $400 an ounce, it is hardly worth the trouble.
But at $1,000 an ounce... Durban Deep is, well, a gold mine.

Further news and thoughts from Addison:

--------------

Addison Wiggin, shooting a coup d'oeil over the day's
headlines...

- Black and blue... and beige all over. This day after
Thanksgiving is a colorful one. Traditionally known as
'Black Friday'; consumers satiated on dopamine, turn out en
masse, credit cards en main, and push retail balance sheets
into the black. Last year, this day saw a 12% jump in
retail spending over the year before. But before the season
was out, retail spending had retrenched to just a 2% year-
over-year increase. Retailers got whacked hard in early
January.

- What will this year's joyous season bring? Well, if the
willingness of the almighty American consumer to take on
debt through October is any indication, retailers will be
quite happy this year. As we noted last week, consumers
were expected to tack on $5 billion in consumer
credit... instead they tacked on $15 billion.

- What the heck... why not? The Fed's Beige book came out on
Wednesday. And while it doesn't necessarily reflect a
booming economy, it suggests at least one that has absorbed
various forms of Federal stimuli in large amounts. As you
might expect, consumer spending headlines the Fed's summary
economic reports received by each of its member banks
through November 17, 2003. Most regions are experiencing
"solid" consumer spending. Only Boston, Cleveland and
Chicago reported"mixed" expectations for holiday spending.

- The Beige Book also coos approvingly on every market
observer's favorite subject these days: joblessness. Most
regions report that the labor market is"generally
improved" or"remaining stable." A host of temporary
holiday box schleppers is expected to make the picture even
rosier. Real estate and residential construction remain
strong in all regions. A headline in the LA times suggests
that sales of million-dollar homes has hit an all-time
record. At this rate, the government's well-timed stimulus
package could have Americans singing carols well into the
New Year.

-"What worries me most at present is that even I, a
skeptic, can't find any good reason why stock markets
around the world would decline significantly," writes Dr.
Doom himself, Marc Faber.

-"That's not to say there aren't a lot of issues that
concern me," Faber continues,"but if central bankers
around the world are prepared to print money and to flood
the system with unlimited liquidity at the first sign of
weakness in the asset markets, then it is difficult to make
a very bearish case for either U.S. real estate or U.S.
equities in dollar terms."

- Faber's case:"We know Mr. Bush wants to be re-elected à
tout prix, and that therefore, over the next 12 months, he
and his lackeys at the Fed and the Treasury will only take
economic policy measures that are designed to keep the
American public happy with 'circus and pane.' This economic
policy was practiced for centuries by the Roman emperors
and was designed to keep the lower classes of society in
good spirits and obedient.

-"As was the case in the Roman Empire, 'circus and pane'
economic policies undermine the value of a currency and, if
pursued long enough, eventually lead to a total loss of its
purchasing power. However, and this should be noted, such
policies can give the majority of investors the illusion of
wealth as asset markets appreciate, while the loss of the
currency's purchasing power is hardly noticed.

-"This is particularly true," Faber notes,"of a society
that has a very large domestic market, where 90% of the
people don't have a passport and therefore know little
about what is going on outside their own continent, and
where the import prices of manufactured goods are in
continuous decline because of the entry of China, as a huge
new supplier of products with an extremely low cost
structure, into the global market economy."

- Trouble is, as your editors have been laboriously
pointing out day after day, if pursued long enough,"circus
and pane" economic policies undermine the value of a
currency and eventually lead to a total loss of its
purchasing power. Indeed, yesterday was one of those
days... despite the holiday in America.

- While traders, brokers and market makers relaxed on the
couch with their hands neatly tucked into their pants
watching football in New York yesterday, the dollar got
sacked and dragged down to a new all-time low against the
euro; 1.197. Ouch again, groan your Parisian
correspondents. As part of the 10% of Americans with
passports (and the even smaller contingent that actually
use them), we feel the dollar's pain keenly.

- The greenback also lost big yardage against pound
sterling, then later spiked by the wily South African rand.
If you are planning at trip to London anytime soon, be
prepared to pay $1.71 to buy a £. Way down in Jo-burg, the
rand rushed its way to a fresh 43-month high against the
dollar.

- The yen, on the other hand, put up an effective defense.
But we are beginning to wonder how much stamina the
diminutive currency has left. Since August, in an attempt
to keep its exports cheap in the eyes of the needy in
American, the Bank of Japan has swapped yen for dollars at
the rate of $1 billion per day. We were flabbergasted one
day last week, when the BoJ bought $9 billion in the
currency markets, pushing the greenback up from 3-year lows
against the Yen; that same day, it was rumored to have just
Y8,500 billion left in reserve.

- Today, our back-of-the-envelope calculations reveal that
Japan has just 72 days left, thanks to the U.S. wanton
attempts to destroy its own currency. What's more, the
Financial Times tells us that the"Bank of Japan reports
first loss in decades." The central bank has announced that
it can't pump any cash into the Japanese government's 2003
coffers. It made a profit of 288 billion yen in the first
half of 2002; between January and June this year, it lost
110 million yen. The BoJ accounted for more than 1% of
Japan's overall tax revenues last year.

- That would be a first, huh? Picture the headlines that
would arise out of this scenario: The world's largest
economy hell-bent on destroying itself inadvertently
bankrupts the world's second-largest economy... what a hoot!
We almost can't wait!

--------------

Bill Bonner, back in Paris...

*** Never before have we seen such a thing in the popular
press. For the first time, in a TIME magazine article
entitled"The Dollar Drag," the idea of hedging against the
dollar has been presented to lumpen Americans. Since
January of 2002, the dollar has lost 25% of its value
against the euro.

***"An Electoral Raid at Baghdad" is the headline story in
today's left-leaning Liberation. There on the cover is a
photo of G.W. Bush, Commander in Chief, serving turkey to
the troops.

We recently received a signed photo of the president,
thanking us for our support."Working together," said he,
"we will build a better future for every American." We
cannot recall giving the man any support or working
together with him, but it may have been at a time when we
were both drinking.

In fact, all we recall is our criticism of his reckless
wars - shooting wars and trade wars... not to mention his
war on the next generation's solvency. Most critics don't
like the guy because he is considered an"ultra-
conservative cowboy." We wish he really were.

We have to hand it to the guy....he may not be a military
genius, but he seems to have a real talent for attacking
the media at vulnerable points. Just when Hillary Clinton
was set to grab headlines with her appallingly
opportunistic Thanksgiving Day visit to
Afghanistan... George goes on the offensive and upstages her
completely. Mission accomplished.

But the admirable part, dare we be naïve in saying so, is
that the president may be entirely genuine; he probably
liked the idea of having turkey with the troops in
Iraq... whether it brought him good press or not. He just
let the TV crews in to cheer them up too.

*** Oh là là... the life of a moral philosopher pretending
to be a stock market commentator is not always easy. No
easier than a Maryland Episcopalian pretending to be a
French catholic. Yesterday, we received a surprise phone
call. It was from Henry's priest... who had found our
commentary in the French version of the Daily Reckoning and
was not happy.

"Oui, mon père..." we replied."Yes, we admitted, we did
use your name. And yes we did make a joke. But no, we did
not intend to cause you any embarrassment."

"But you must realize, here in France this is no laughing
matter," he continued."We have a long history of religious
persecution. This is a sensitive subject. It is not
something you should treat so lightly."

"We did not really think that anyone would take our comment
about burning Henry at the stake in St. Peter's Square
seriously..." we protested.

"Oui mon père... mes excuses..."

---------------------

The Daily Reckoning PRESENTS: The bubble in China... finds
its roots in Western exuberance.


SINOSITIS
by Bill Bonner

Across the table from us at lunch yesterday sat the
prettiest sinologist we had ever met. Long, dark, silky
hair... dark eyes....a lively smile.....she is the only
sinologist we had ever met, too, but that perspective did
not help; she was so lovely and charming we knew we could
not disagree with a word she said.

The luncheon had been arranged by our mutual friend,
Michel, upon whose face a look of satisfaction was becoming
so comfortably fixed, it looked as though it might be there
forever. For here was an expert confirming, with authority,
what Michel had been saying for years - that The China
Story is a fraud.

"I wouldn't put a nickel in India," says our friend Jim
Rogers,"but I think China is the future. I tell people
that if they want to do something that will really help
their children and grandchildren, they should teach them to
speak Chinese."

Jim has made two trips around the world - one on motorcycle
and another in a specially-designed Mercedes. His
conclusion has become the dominant one - China is booming,
China is the future, China is unstoppable. He has even
hired a Chinese nanny for his daughter; so she will learn
Chinese before she goes to school.

There are two major ways to compete in the business world,
price or quality. China has an almost inexhaustible supply
of cheap labor. With adequate capital funding... and access
to global markets... China seems sure to win a large part of
the world's manufacturing; in fact, it already has.

The China Story line is that it will follow the well-trod
path of Asian economies, with export-led growth. Already,
it is building so many factories and using so many raw
materials, it is disturbing markets on both ends of the
production cycle. Chinese buying of raw materials is said
to be the cause of a bull market in commodities. Meanwhile,
Chinese selling of manufactured goods is depressing prices
at the retail level all over the world. Walmart, the
biggest retailer on the planet, constantly demands lower
prices from its suppliers. Suppliers have little choice but
to buy a ticket to Beijing. If a gadget can be made in
China... its price is likely to be falling.

Typically, the pattern - pioneered by Japan... followed by
South Korea, Taiwan and Malaysia - has been to start with
simple products and to gradually take on more complex and
demanding production. Little by little, your labor becomes
more skilled, your machinery becomes more sophisticated,
and your sales team is able to reach deeper into foreign
markets. Soon, you have put the American TV makers out of
business and you are rivaling General Motors and Ford in
auto sales. Sony, Hitachi, Honda, Mitsubishi - all have
traveled this route.

The trouble for Japan was that it ran out of cheap labor.
In fact, it was running out of labor at any price. Japan's
population is falling... and is among the oldest in the
world; it could supply neither workers nor even consumers.

But China, that's another story!

The country not only has an almost infinite supply of
willing, cheap workers, but what China doesn't know about
pent-up consumer demand is not worth knowing. Almost nobody
has ever had anything in the Chinese heartland. And there
are millions and millions of nobodies.

All up and down the coast, construction cranes are
everywhere. In Shanghai, the weight of new construction is
so heavy that the entire city is said to be sinking at the
rate of 1 centimeter per year.

Among investors, China is attracting standing-room-only
crowds. A report from the recent Gold Show in San Francisco
tells how investors mobbed Robert Friedland's speech on
Ivanhoe Mines. Friedland had managed to turn the mining
story into The China Story... and investors couldn't get
enough of it. Columnist Tom Calandra is sold on
it... Friedland and his friends are sure to get rich - again
- on the story.

Ivanhoe has a huge property in Mongolia, that will one day
- or so the story goes - produce copper and gold. The
copper will be sold to China... at ever rising prices.
Listeners were invited to imagine what would happen to
copper prices if every Chinese family put in an air-
conditioner! They are left on their own to imagine how rich
they might become after buying Ivanhoe, as China and the
mining company boom together.

Across the Japan Sea, the Japanese Central Bank reports
that"economic activity still continues to be virtually
flat as a whole... private consumption continues to be weak,
housing investment remains sluggish, and public investment
is declining." But foreign investors in Japan are excited;
they see themselves as profiting from The China Story! The
fund manager we met in London, for example, saw Japanese
companies as the saloons and feed-stores servicing the
miners in the Great Chinese Gold Rush.

"Japan has the money, the know-how, the commercial
connections, the technology - everything the Chinese need
to continue their development," he explained.

On the thin surface of the Western financial press, it
almost seems to be true. China is growing at such a furious
pace, the Chinese government is allegedly fiddling the
figures in order to understate its growth rate; foreign
investors might be alarmed if they knew what was really
going on.

They would be appalled if they really knew, was our
sinologist's message.

The woman speaks flawless Chinese, as well as Malay and
Cambodian, and has lived for long periods in China. She
does not look Chinese,"but that doesn't matter," she
explains,"if you speak the language and understand the
customs, they treat you as though you were Chinese. Which
is not necessarily a good thing. Life in China is very
hard."

"It's not at all what Westerners think," she continued.
"They see the construction on the coast. But they have no
way of knowing if these projects are profitable. The
numbers... and the basic information... is not available. And
if they were to go into the interior of the country, they
would see a different world. There are millions and
millions of people just trying to stay alive. You see
children with bloated bellies; they just aren't getting
enough to eat.

"Westerners see the Chinese system as such a great
thing... compared to, say, India, it seems to work so well.
But that is just not true. In India, there is more or less
a free press. So you learn about all the crazy things that
go on. But in China, you never find out. And India, after
all, is a free country. That is not at all the case in
China. China is still a communist country. Before that, it
was still a totalitarian state. It has almost always been a
totalitarian state. You still can't go where you want. You
still don't know what the rules are. You still can't find
out any information. And everyone you talk to - even if he
is a successful, powerful entrepreneur - has someone behind
him, a shadow, with the real power.

"Right now, everyone seems to want to put money into
China," she went on."But how do they expect to get it out?
Even the Taiwanese have not figured that one out. The
Taiwanese are Chinese. They have powerful friends, and
family, in the Chinese power structure. But even they
cannot get money out of the country. They can put it in.
They can do very big, profitable enterprises....but when
push comes to shove... even they cannot get it out."

Americans and Europeans imagine that the world has
undergone a major change. The triumph of Western market-
driven consumerism is total, unchallenged and final, they
believe. Yes, the Chinese may still call themselves
communists, but they follow the same rules - written or
unwritten - as everyone else... the rules of civilized,
Western commercial transactions. You expect that when you
buy something, you can sell it. You think that when you own
something, it is yours to do with as you like... and that
your money is yours to take home and spend.

But the Chinese have rules of their own, our beautiful new
friend reminded us. As a foreigner, you won't even know
what the rules are... until it's too late.

The China Story is a giant fraud, Michel maintains. It is
like the Russia Story before WWI. French investors were the
major investors in Russian development projects. Russia was
a growth stock back then; it made sense to buy in. Fifty
years later, hardly a family in France did not have a few
worthless Russian bonds in its attic.

Then, the Russia Story became a Soviet Story. Again, the
Western intelligentsia were taken in. George Bernard Shaw,
Eleanor Roosevelt and hundreds of other visited Russia and
were impressed with the marvels of communist organization.
There were construction projects everywhere - canals, dams,
railroads, factories. No one seemed to notice that the
projects were built with slave labor and would never be
profitable, or even useful.

There was also The German Story of the '30s. The country
seemed so dynamic... so well-organized... so full of energy
and self-confidence. As WWII developed, many foreign
intellectuals who had visited Germany came home agreeing
not only that Germany would win the conflict... but that she
also deserved to win, because she was the country of the
future.

"India is, of course, a mess too," the sinologist
concluded."But each time I left China for India, I
breathed a sigh of relief. There was no one following
me... no shadow partners... no hidden rules. India is a
paradise compared to China."

"Pao mo," we said to our guest on parting.

"Excuse me?"

"Pao mo. Isn't that Chinese for 'bubble'?"

"Oh... oh yes, pao mo," she said, saying the words in a way
that barely resembled our pronunciation."Pao mo. Exactly."


Your editor,

Bill Bonner

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gesamter Thread:

• The Daily Reckoning - Sinositis (Bill Bonner) - Firmian, 01.12.2003, 22:46
  • Und die Ãœbersetzung - Firmian, 01.12.2003, 22:49
    • Und das Dankeschön:-) Gruss (owT) - Tofir, 01.12.2003, 23:11
      • Re: Danke auch:-) (owT) - JoBar, 02.12.2003, 10:35