March 24, 2007
In China, a Man's Home is his Castle Too
Americans need to lose the Cold War image of China as people in Mao jackets riding bicycles holding little red books. People in China struggle with the same issues we do in America, including local government officials and developers trying to take your house so they can build a shopping center. Sound familiar? This issue is especially important in light of the new private property law passed by China's legislators last week.
Local residents look at a two-storey home, which is now the only building left standing atop a mound in a 10-meter-deep construction pit in Chongqing March 22, 2007. [newsphoto]
There is a great story in today's China Daily, Defiant couple stave off wrecking ball, about a family in Chongqing that is refusing to give up their 2000 square foot house even after the local authorities cut off their water and electricity. Worth noting: 1) the story is being reported by reporters from all over China, 2) the couple has a banner on the house reading "Rights to legitimate private property shall not be infringed upon," 3) the issue is the price--they want to be paid the fair market value in the hot property market so they can relocate, and 4) my friends at Sina.com took a poll yesterday showing that 86% of the 83,175 people interviewed supported the couple's decision. Every one of these points flies in the face of the stereotype shown in the U.S. media.
I'm not saying it's Kansas in Chongqing. Chinese institutions are not just like ours; they are evolving in a healthy direction. There is not yet rule of law, although they are working on it. But people are people everywhere.
Suggestion: set up an automatic search on Google for all stories with the words "National People's Congress" to be delivered to your email every day. You will see a dozen or so stories each day so you can track the changing legal and regulatory climate in China yourself.
JR
Posted by John Rutledge at 2:25 AM | Comments (3) | TrackBack
What are peanuts, shrimp, and spinach doing in the Iraq bill?
March 23, 2007. This week the House passed a$124 billion legislation Iraq funding bill that adds $21 billion in domestic pork projects to the $95.5 billion requested by the Administration. The spending includes includes $74 million for peanut storage, $283 million in milk subsidies, $120 million for the shrimp and menhaden fishing industries, $35 million for NASA and $25 million for spinach growers. The Senate version of the overall legislation totals $122 billion.
Posted by John Rutledge at 1:51 AM | Comments (2)
March 23, 2007
IMF: Global Economy on Track for Growth
Recession? I don't think so.
On Friday, Rodrigo Rato, the head of the IMF, told a Wharton group that the IMF expects worldwide economic growth for 2007 to clock in at close to 5 percent, the strongest five-year span for the global economy since the late 1960s. Although the US is slowing a bit, Euro area growth momentum looks solid, Japan's economy seems to have regained its footing, and China and India continue to be engines. You can see the Forbes.com storry by clicking here.
We'd better keep this place growing. Barring dumb moves by the Fed (rate hike) or Congress (tax rate hike) the U.S. economy will do fine. Stock prices are still too low for today's profit growth and interest rates.
JR
Posted by John Rutledge at 11:21 PM | Comments (1)
FCC Network Use Study
The FCC today took a shocking step when they decided to actually gather information about a topic before they make a rule saying how they are going to regulate it.
They approved an inquiry exploring how companies that provide high-speed Internet service manage Web traffic, and whether consumers of such broadband service are adversely affected.
The issue, of course, is the so-called net neutrality issue. A group of content providers including Google and EBay want Congress to pass laws imposing price controls on their distributors. I testified in Senate hearings on the subject a few months ago that it was a dumb idea that would reduce investment in high-speed networks we need to be competitive.
It's a simple idea masquerading as a complex subject. People's use of the interneet is shifting from exchanging emails and data to downloading movies, watching HD TV programs, and other heavy traffic. The switch is fast gobbling up available network capacity. Somebody is going to have to invest a lot of money to build the network. The big content providers are running businesses with 70-90% gross profit margins. They would like Congress to make sure they don't have to fork over any of that margin to the content distributors. I say let them duke it out.
Here is a pretty good YouTube video on the subject.
JR
Posted by John Rutledge at 2:45 AM | Comments (2) | TrackBack
America's Capital Markets
March 23, 2007.
I want to pass along this article from the Boston Globe, Shifting financial Winds, written by Joseph Fuller, the CEO of Monitor Group.
His topic is the shrinking relative influence of America's capital markets and professional standards in the global economy.
Over the last 25 years, foreign companies anxious to be traded on American exchanges have adopted U.S. financial reporting standards. We Americans have exported such new forms of capital as private equity and venture capital. Executive compensation at foreign multinationals has followed American precedents. So have approaches to board governance, securities and antitrust enforcement regulation. ...American professional-services firms — in investment banking, law, accounting and consulting — have shaped global practice. ...Americans have benefited from the United States' global ascendancy in corporate finance, strategy and governance. U.S. policy has emerged as the world's "reserve policy," much as the dollar emerged as its reserve currency. That position is now in peril. In 2000, 50 percent of initial public stock offerings in the world were listed in America; in 2005, only 5 percent. ...
We should listen to what Joe has to say. It's good to be rich and powerful but it takes work to stay that way. We need to quit whining about the global economy and get back to work.
JR
Posted by John Rutledge at 1:45 AM
Learn Chinese Suggestion
I received a question from Brian that I want to share with you.
Hi John, I know you visit China frequently and I have been wondering, do you give your talks in English or Chinese? Is it necessary to be able to speak Chinese at the events you attend or do the attendees usually speak English? Could you recommend any resources for someone interested in learning Chinese for business? Thanks, and keep doing more Kudlow & Company shows, you're one of their best panelists!
Brian
Brian,
Thanks so much for your note. When I give lectures in China I start in Chinese until I run out of gas, then switch to English. At this point I am good for somewhere between a paragraph and a page. It's not necessary to speak Chinese to visit China or do business there--there are many young people who speak English; there are translators to help you talk with others; and the conferences generally have simultaneous translators. People in China, however, will greatly appreciate the honor you show them by trying to learn their language and culture. It is an act of respect.
I have found that the best tool for learning Chinese is the Pimsleur tape series. (Click on the image to see the details on the course.) You can get the beginning course (18 half hour lessons) at Amazon for less than $40.
I have used Pimsleur courses for more than a dozen languages and find them the best way to get started. And one final tip; you don't need to buy the full course set right away. The 18 lesson intro series will give you plenty to do for a long time.
JR
Posted by John Rutledge at 1:42 AM | Comments (6) | TrackBack
Defense Spending Comparison
It is fashionable today to talk about the China Threat. This was especially true 2 weeks ago when China released its new budget showing a big percent increase in defense spending. Thought you might like to see the real numbers. U.S. spending towers over everyone, including China, which will spend $45 billion this year, about one-fifteenth as much as we do.
It is true that China is growing very large in many ways and that China's growth is something we should not ignore. And it is true that China's interests are not our own, just like all the other countries. Maybe we should use this time to get better acquainted. Just a thought.
JR
2005 defense spending
Country Comparisons
Posted by John Rutledge at 1:39 AM | Comments (1) | TrackBack
March 22, 2007
Economist Escapes to Maui to Repair Damaged Brain: Some Progress Reported but Much Work Still to do
OK, I actually like it here too. There, now I have confessed.
When my pen dries up and I can't write it is not a pretty thing. Just ask Pamela and the kids. When it happens, it is not because I have nothing to say--I can do TV and radio and talk with print reporters about ideas all day long. It's because I can't figure out how to untie the knot of ideas and things I've seen so that I can make them follow the straight line required to write them down. Fortunately, there is a solution--a deadline.
This week I am blessed with a deadline to deliver an article on Asian Energy Security and the Middle East for the BOAO Forum for Asia, where I will speak in late April in Boao, Hainan, China's island province lying in the South China Sea. The Boao Forum is a non-government organization founded in 1988 by the former Prime ministers of Australia, the Phillipines, and Japan. It's mission is regional economic integration and development. It's General Secretary, Long Yongtu, is the extraordinary man who negotiated China's entry into the World Trade Organization. The conference will be attended by more than 1300 delegates from all over the world discussing a rich set of topics.
This topic is an important one for reasons that everyone knows. World growth is raising living standards for billions of people but is increasing energy demand faster than supply. Incremental supplies come largely from the politically troubled Gulf Region, where peace is not likely to break out soon. Stopping growth is not an option for most governments. Competition for energy resources is the most likely source of future conflict among nations.
I am going to use the article and talk at the forum to present some ideas I have been working on for some time that view economic activity as energy transformations powered by current and stored solar energy according to the laws of thermodynamics. The energy problem will only be solved if we broaden our notion of energy supplies to include all stores of energy, if we view economies as information networks, if we view investments in education and information technology as substitutes for fossil fuels, and if we realize that productivity growth is the only way the entire world can grow without fighting over oil.
More to come.
JR
Posted by John Rutledge at 6:16 PM | Comments (3)
March 2, 2007
Forbes on Fox Saturday 3/3/07
Forbes on Fox Topics for Saturday 3/3/06
(3/2/2007) This weekend I will join Steve Forbes, Jim Michaels, and all my friends at Forbes on Fox to discuss what last week's crazy stock markets mean for investors. Topics include how a tax hike would impact the stock market, whether there is a recession ahead, ideas for recession-proof stocks, and how to deal with our fading friends in Europe. The show airs at 11AM in New York and 8AM in Los Angeles on the Fox News Channel as part of Neil Cavuto's Cost of Freedom block. I hope you can join us.
Last week’s big drop in the stock market was a wake-up call. The economy, profits, and interest rates are all in great shape today. But global investors are skittish about the things they see coming out of the US congress—An early Iraq pullout, tax rate increases, the end of secret ballots on unions, new, heavy-handed regulations on the Internet, and massive protectionism.
The talking TV heads have blamed this week's Chinese stock market air pocket on everything from Alan Greenspan's speech to rumors that the Chinese government may impose a capital gains tax (the current rate is ZERO!). I take it as a signal that a signal that US politics, through protectionism and currency-meddling, could destabilize their economy too . Knock it off, Congress, before you wreck the fastest growing global economy in a hundred years.
And another thing...why can't we get a Treasury Secretary that still has hair? Which reminds me--if you don't watch the show this weekend your hair will fall out. I'd tune in just to be safe.
On the effect of the deficit on the stock market: No one has ever made a dollar using deficits to forecast interest rates or the stock market, not even THE RICH. The relationship is not just weak, it is non-existent. The historical correlation actually has the wrong sign. There are two reasons for this. One is that movements in the deficit are mainly a reflection of growth--people who make money pay taxes. the other, deficits are chump change relative to the asset markets where they must be absorbed. We have more than $165 trillion of privately-owned assets in the U.S. Selling a hundred billion more less of any asset doesn't even move the dial.
As America beefs up its presence in Iraq, European countries continue to pull troops out Iraq and Afghanistan. Should we boycott their products and cancel EU vacations in protest?
This is a truly dumb idea. Boycotting Europe would not help gain their support, it would further alienate them. This is the next chapter in “The Neocons Fabulous Adventure.” We don’t need a surge in Iraq. Their government will not be able to take over in any reasonable time. There is simply too much wealth and strategic power buried under Iraq for this mess to go away. I am sorry to say tbhis, but the only permanent solution for Iraq, a permanent multi-country peacekeeping force there. Iraq is, and always has been, about oil. The world economy won't go around without it.
This week the house voted for the Employee Free Choice Act, a proposal which would allow unions to organize workplaces with public rather than secret ballots. Will the plan help or hurt our job market and economy?
Taking away a worker's right to a secret ballot is a tragedy. It will hurt the economy, not quickly though. It will be a long, slow painful erosion, just as has happened in Europe over the past 20 years. The Employee Free Choice Act is a payoff to the unions for their support in the November elections. American workers are feeling the effects of global competition and the accompanying wage erosion.
Capital was once trapped inside the borders because it was expensive and cumbersome to move. Advances in communications technology have changed that. Today, an investor can move capital from any country, to any country, at virtually no cost. And you won’t know that he did it.
Capital owners have been systematically redeploying their capital in high-return, capital-starved, places like China and India. That’s one of the reasons profits are an all-time high as a share of GDP, up by more than half from 8% to 12+%.
But a higher profit share of GDP means a lower wage share. That’s why workers revolted in November, and why we see a union bill in Congress. The problem is, this solution won’t work. Instead of helping the workers, it will just drive capital faster offshore, reducing productivity and real pay for workers even further.
It’s good short-term politics in short term, but bad policy. Growth and incomes will suffer.
JR
Posted by John Rutledge at 6:17 PM | Comments (2)