KaoShiong is where the bulk of industrial manufacturing occurs
Taiwan is a Japan trend follower
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
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
A more mature party with measured policies which lost leadership due to lackluster performance
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
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.
Lots of quant funds operating within the South Korean market
Very fund has its own strategy and model
Things will work until they don’t.
The long tail where shit happens can be very fat
Funds tend to graduate towards excessive leverage overtime. This is the nature of an industry largely driven by fear and greed
KoStar, Korea’s equivalent to Nasdaq is the exchange of choice for Quant operations
Merrill Lynch in South Korea
their two largest clients are quant funds
Susquehanna Capital group
drives 10% of all daily transactions on the Korean stock market
up to 100 times per day on each listed company
lesser demand for sales and account representatives
demands for high throughput cable connection to their exchange networks
client technology stack
large scale utilization of neural networks
Equities sales representative teams has been reduced from 8 to 3 over the past year
On valuation and economy
Multiples are becoming exceedingly high given free money provided by Federal reserve and central banks around the world with low to negative interest ranks
largely driven by decoupling of interest rates and inflation
global deflationary pressures
productivity driven by technology proliferation
asset prices will contract when interest rates increases
On real estate industry
property prices has more than doubled in prime Gangnam area in Seoul over the past 4 years
In times of economic recession property valuation at the center of premium districts will remain stable while those at the fringes will become soft
segments within the prime Gangnam area
situated in complexes with amenities day care services and grocery stores
USD1000/sqft – USD1 million for a 3 bedroom apartment
up to 16 units within a building
USD700/sqft – USD750K-800K for a 3 bedroom apartment
While governments of both Japan and Korea are trying to further decentralize urbanization across their countries, organic tendency thus far has been towards centralization. Seoul and Tokyo occupy major proportion of the population with smaller townships in the outer fringes dying out. Same thing is observed with San Francisco, coastal cities of Australia and Auckland in New Zealand.
Shifting population and resource equilibrium
Phases in the cycle
competition for resources increases
housing and other amenities will become less affordable
income gap increases
people will have children later or opt not to have children
population starts aging at an accelerated rate
spending drops as population aging continues and population size starts contracting
economy slows down and starts contracting
competition for resources decreases
labor shortage becomes pronounced and wage levels starts increasing
housing and other amenities become more affordable
household confidence increases leading to more children
economy starts growing
East Asian countries
is in the mid phase where households are feeling the pinch of scarce resources
birth rate per woman is starting to fall
2019 fertility rate is at 1.323 per woman
in the latter phase where population decline
labor shortage are becoming pronounced
New college graduates are in high demand and can easily find jobs
2019 fertility rate is at 1.478
immigration laws are loosen
Money laundry capital of the world
Stable government and economy
the SGD1000 note receive a premium rate brought to South Korean exchange offices
fertility rate is one the lowest in the world at 1.26 per women, the government has long adopted a very loose immigration policy to offset the deflationary effects of an aging population
Net effects on the economy
continued influx of high income earners and high net worth individuals
continued lowering of birth rates
average income per capita will continue to increase as low income households continue to die off due to low birth rates
On Korean politics
The legal framework is split into the police and the prosecutors. With the police handling the day to day executive work and the prosecutors given the right to investigate into any issues of concern.
The prosecutors has grown big in numbers over the past few years and the government is trying to curb its influence so as to maintain balance within the system.
The police was involved in a drug scandal in Gangnum where three popular night clubs were closed down. The prosecutors are using this as leverage to remove the brake on their continued growth in influence. Meanwhile Octagon which had been steadily losing popularity due to the existence of the three clubs is now surging in popularity again. This is mainly due to the lack of alternative options in the Gangnum area.
Following the end of world war two, with US being the world’s largest creditor, countries started largely denominating their debts in USD. US in turn pegged USD to a fixed exchange rate with Gold. This agreement was formally known as the Brettonwood Systems.
US experienced difficulty backing this exchange rate during the oil crisis of the 1970s when OPEC started artificially reducing it’s supply of oil thereby driving it’s price in USD. This had a strong downwards pressure on value of the USD which the US propped up through use of their foreign reserves.
Seeing this weakness in US foreign reserve, thereby an discrepancy of the USD against gold, other trading partners started exchanging US dollar for gold. This added further pressure.
To provide relief on their foreign reserves US finally decoupled the fixed exchange rate between USD and gold. This resulted in the collapse of the Brettonwood Systems, leaving USD as the official reserve currency in the world without any underlying backing.
What followed were decades of global growth largely funded by the US government through control of the world’s reserve currency.
Developing countries would sell goods to the US in exchange for USD. Instead of buying US goods in exchange for the USD earned, they would buy US Treasury bills, notes and bonds. This had the effect of maintaining favorable exchange rates for these countries while keeping their products competitive in the US market.
This widespread practice had the long term effect of driving balance of trade deficits in US with it’s trading partners. While negligible in times of strong US domestic GDP growth, this system has of late started exhibiting difficulty sustaining. This is largely due to slow down in US domestic growth and its inability to scale to support trading partners that 4 times times the population size of the US.
It is advised countries which had long relied on this approach to domestic growth transit their economies to become net importers as soon as their economy gains the necessary growth momentum to do so.
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
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
Company assessment criteria
Price to book value
sound balance sheet
Price to earnings ratios
start with largest soundest enterprises
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
Rise of Islam and Christianity in Siberia prior to Soviet collapse
Hong Kong riots
Barcelona declaration of independence
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
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
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
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)
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