KaoShiong is where the bulk of industrial manufacturing occurs
Taiwan is a Japan trend follower
On strategy
When macro economic environment is not conducive for continued operations, stop operations to conserve resources for future opportunities.
Decision to close wooden frame manufacturing factory
Europe became more environmentally conscious
Malaysia reduced the yearly quota of timber to be harvested
These two trends reduced demand for wooden frame and increased cost of raw wooden material
On personal growth
Adversity in youth provides an opportunity to build character and gain experience.
restricting the amount of resources your offspring has access to might be a good thing but it breeds resentment
Good things come from seemingly bad experience too
on DDP policy in KaoShiong
Too radical in their actions and lacks calibration in their policies. Really good at manipulating the press
Stance
Anti China
Pro resource less young
Pro taxing businesses for social welfare
Pro reducing pension to retired
Equally corrupt as the KMT but too aggressive in their policies leaving nothing for the business to continue operations
manufacturing businesses has been negatively affected with over regulation and rising administrative cost
Worker protection makes overtime illegal severely restricting the throughput volume businesses are allowed in their operations
Workers not making enough from their day job due to such restrictions are forced to take on a second job on top of their main one
30,000 to 40,000 businesses have failed within the KaoShiong area over the past 12 months at the point of writing with more set to fail if policy should persist
While GDP growth rate has been reported at 2% in 2019, shipping volume through KaoShiong has continued to drop
On KMT
A more mature party with measured policies which lost leadership due to lackluster performance
Stance
Pro-China
Pro-business
Pro-protecting pension of the retired
Social security system and the aging population
Social security system is in a state of flux. Employers are required to contribute to two systems. The contribution for the old system is 5X the new system and was too much overheads for the employers.
Retirees are concerned their pension will get cut while the young are concerned their contribution to the social security system is to heavy a burden
On China
China has imposed restrictions on independent Chinese tourist to Taiwan
Chinese tourist are easy customers who engage in indiscriminate spending
Night markets looked empty
Quite a few restaurants have closed down along the main street due to the lack of tourist spending
The bulk of Taiwan’s export has been to China it makes economic sense for both territories to become unified
noteworthy to observe Joe’s shift to a pro Chinese stance the on Chinese Taiwan relationship as compared to the high school days.
Observation of Taiwan style politics in contrast to Chinese style politics leads me to have reservation about how these two systems can be resolved.
the Taiwanese have no reservation with injecting outrageous humor into the legal framework afforded to them by their political system with candidates as outlandish as Mr Crazy Friday and Mr Fortune God
China’s one country two system need to become more robust for this undertaking
Recent HongKong riots has caused concern for Taiwanese and has lead to increased support for the DDP whose leader English Tsai is known to be a strong negotiator
On Korean Japan trade war
Huge influx of Korean tourist observed during this period of tension (Sept 2019)
Korean tourist are more discriminate in their spending, hence a lower per capita spending as compared to the Chinese tourist.
Following the collapse of the USSR, globalism hijacked globalization. And that is the problem.
Globalization is defined as interconnectivity driven by movement of people, technology and economies.
Globalism is based on the doctrines of neoliberalism (the Washington Consensus). It is a drive lead by the US to universalize Western values. Western values contain three components politics (liberal democracy), economics (market capitalism) and international relations (institutions like the IMF and WTO).
This does not allow the various cultures the space to figure out their systems for themselves.
China is proposing a different approach where the countries should decide for themselves how they want to run things internally. Countries should limit their interfacing to just economic transactions.
Drawing lessons from the failure resulting from wholesale adoption of Communism, China choose to push back on repeating the same mistake with neoliberalism. Instead it choose to forge its own path to figure out system that works for itself. To date it has successfully lifted 800million people out of poverty while keeping income inequality low and social mobility healthy.
While the country remains under the rule of a one party government, its HR system is one of the most rigorous systems in the world. Candidates are put through a rigorous process of cross training across various departments where they gain management expertise. Only the most able candidates are promoted to the central committee after a 30 year long process.
Key take away
The effects of counter balancing that is classical of liberal democracies that is managed through a two party system could still be possible in a one party system so long as it can keep avoid being
Always bet against the central banks and with the real world
truly down trodden people do not rise, but hell hath no fury like suppressed peoples whose expectations have been aroused
people don’t change their ways until their are forced to
while it is easy to figure out an investment is cheap, the real work is figuring out if a change is about to occur in the near future. It is important to study markets and their history
when seeing a big change coming (the opening of the trans Siberian railway), consider the economic, political and social shift
modus operandi
Why buy a new sofa when it could be put to work in the markets
Only invest in what I can sell quickly
do nothing until you can see the money to be picked up around the corner
key areas of study
geography
politics
economics
history
Company assessment criteria
Price to book value
sound balance sheet
pay dividend
Price to earnings ratios
Viable industries
start with largest soundest enterprises
banks
mines
news papers
On assessing countries
Watch out for statism – governments getting in the way of an organic market
democracy does not equal prosperity
US government piling more and more regulations
SnL crisis of the 1980s
Artificially suppressed prices
1970s gold in America
2019 prices of pork in China
Foreign aids (IMF, UN and Peace Corps) just props up a system that does not work and delays the actual rebuilding process. Have faith in the locals to rebuild themselves in a configuration that works for them as opposed to a system suited to foreigners liking (hubris)
On ethnic strife and separatism
Some geographical boundaries don’t make sense.
no borders remain stable for long
economic hardship will bring to surface these fault lines as they get used as a vehicles to get more
Wait till wars are fought and border issues sorted out. It might then become a great investment opportunity to enter at the bottom
examples
Rise of Islam and Christianity in Siberia prior to Soviet collapse
Hong Kong riots
Barcelona declaration of independence
XinJiang, Tibet
black markets as signals: difference between black markets rates and official exchange rates provide an indicator of how much the central bank has propped up the exchange rate. Minimal to no differences are signs of a strong economy
major red flags:
currency controls, import taxes, export restrictions. Makes it hard to pull funds out
is country trying to devalue its way out of its internal problems instead of doing a proper fix?
frantic purchase of gold in local jewelry store
Positive signal:
Is the country trying to get foreign hard currency by making things other people want to buy – quality goods
Is the country learning to compete and out innovate its competition
an educated population
On centrally planned economies
the market feedback mechanism is missing
resources get ruined due to misuse
it would have thrive if it was a sound economic theory
On China
while Russia abused their resources, China having nowhere to go were more deliberate and took better care of their resources
success had a lot to do with economic and political organization
example
took bees to blooming flowers to work them 5-7 times harder than their foreign counterparts
Hong Kong, Guangzhou and Shanghai being captured by the capitalist spirit generally ignores capital’s policies
Note worthy collations
China (labor) / Siberia (natural resources)
Australia (natural resources) / Japan (capital)
US (capital) / Canada (natural resources) / Mexico (labor)
On commodities
most local markets will eventually get assimilated into the global market
diamonds have artificially propped up prices that will be hard to maintain in the long run. DeBeers will eventually run out of cash buying up supplies from the black market and it will lead to sudden price collapse. Opt for gem and rubies instead
when gold gets too cheap companies will figure out ways to use it thereby depleting its supply driving up price. Same could be said of oil
underlying structural issues within a country can stay hidden for long during times of a commodity boom
The key to success
out of every 1000 people who wants to be rich only 6 can master the discipline to do so
stay focus on a single goal for five, ten, twenty years
China simultaneously experiences imported deflation and inflation.
Drop in global demand for exports causes credit to unwind within the manufacturing sector.
Swine flu and depleting foreign reserves causes price pig to increase.
This will be a useful case study to observe the monetary and fiscal policy China implements to deal with simultaneous inflationary and deflationary pressures.
China Factory Deflation Worsens as Pork Drives Consumer Priceshttps://www.bloomberg.com/news/articles/2019-10-15/china-factory-deflation-worsens-as-pork-drives-consumer-prices
This book describes how the 1997 Asian Financial Crisis transpired.
Impacted countries
South Korean
Indonesia
Thailand
Malaysia
Singapore
Hong Kong
China
Key lessons
Only 2 of these three conditions can be allowed to be true without causing inflationary recession
Fixing the currency exchange rates against other reserve currencies
Control over domestic interest rates
Control over capital inflow
On foreign capital flows
huge volume of foreign capital flows into a country
economic growth rate increases
inflation rate stays low
huge volume of foreign capital flows out of country
economic growth rate decreases
inflation rate goes up
Common pattern across countries
The build up
Long periods of high export lead GDP growth attracts high levels of foreign investments. Huge volume of foreign funds originated from Japan which was having a very loose monetary policy
Countries peg their exchange rates to reserve currency to ensure stable prices for both imports of raw materials and exports value added products
Countries currencies are not reserve currency, hence foreign loans were denominated in foreign currency
Excessive leverage within the country by domestic parties who take on short term loans denominated in foreign currencies at lower interest rates to finance long term projects that generate returns in domestic currencies
Stocks are purchased with borrowed money. These stocks are then further used as collaterals to borrow more money
Real estate are purchased with borrowed money. These real estates are then further used as collaterals to borrow more money
Moral hazard due to corruption of financial system
banks are arm twisted to finance projects that are not financially viable by governments and politicians
The economic headwinds
countries face increasing export market pressure
Competition at the low end of the export markets from China
Competition at the high end of the export markets from Japan
Japanese government instructs central bank to tighten monetary policy to reduce real estate. This severely restricted liquidity from Japan and reduced availability of short term foreign loans to affected countries
The crash
Borrowers within these countries increasingly experienced difficulties rolling over their foreign denominated short term loans to finance their long term illiquid domestic projects
Many of them started defaulting on their loans
Foreign investors started getting spooked and started withdrawing their funds or refusing to allow their loans to roll over
Non-performing loans builds up amongst banks within these countries
Capital flight continues causing downward pressure on the exchange rates of these countries
Countries continued defending their exchanges rates by buying up their own currency and selling off foreign reserves (assets held in foreign currencies)
Countries deplete their foreign reserves and are unable to uphold their exchange rates. Since most debts are denominated in foreign currencies, they are not able to print money to pay off these loans.
The economy grinds to a halt and hyper-inflation occurs within their financial system at this point
domestic production stops and locally produce foods is no longer available for sale
due to shortage of foreign reserves imported products become very expensive in local currency
Countries approach IMF for loans to tide through this liquidity crunch.
IMF steps in and with a lack of understanding of the economic patterns imposes these requirements:
Countries required to impose high domestic interest rate. It has the effect of further reducing the money supply within these countries causing more defaults domestically.
Countries will reform the financial systems to remove cronyism lead financing
Riots ensures and Anti-establishment governments get elected in some countries
The recovery
IMF releases the misstep in policies and relents
Countries lower their domestic interest rates to increase liquidity within their financial system
Countries allow their exchange rates to float freely
Relatively cheap asset prices within these countries starts attracting foreign investments again
In a world where currencies are not pegged to gold or other currencies price stability is achieved when major trading partners all target the same inflation rates. Otherwise wild fluctuations in rear asset prices and exchange rates will likely occur.
We should expect the following loops to occur.
Loop #1 – When central bank pursues expansionary monetary policy
Central bank pursues an expansionary monetary policy
investors expect inflation rates to go up
investors expect currency value to drop in overseas market
investors sell off real assets within country and exit funds out of country to other countries
due to decreased demand, stocks, real estates and commodity drops in value.
Exports become more competitive and balance of trade surplus results.
Loop #2 – When central bank pursues deflationary monetary policy
Central bank pursues deflationary monetary policy
investors expect inflation rates to go down
investors expects currency values to increase in overseas market
investors move funds into country to buy up real assets
Due to increased demand, stocks, real estate and commodities within the country appreciates in value
Exports become less competitive overseas and trade deficit results
Key insights
US has been experiencing a balance of trade deficit since 1980. This is partially due to the result of going off the gold standard.
While it did not actively pursued a deflationary monetary policy, it’s stable politic system and high level of technology innovation, relative to other countries, has an overall deflationary effect on its economy.
The net effect is the same as if the central bank pursues a deflationary policy.
The launching of Libra Token will allow large swath of people access to banking
It will also allow corporations with a huge stock pile of cash the access to alternate forms of investment
Libra currency liquidity
Every Libra token that gets created is backed by a reserve of real assets. Close examination of partner balance sheet figures shows approximately USD148 billion dollars of cash and equivalent available for deployment right out the gates.
Libra social impact
One of Libra’s goals is to provide banking access to segments of the world’s population that don’t. Close examination of partners’ reach to this segment of the world shows 7.9million people. This is not including the 204 million African Internet Users on Facebook.
